PulteGroup (PHM) Q1 2024 earnings call transcript

Thanks, Jim. Good morning. Let me welcome everyone to today's call. We look forward to discussing PulteGroup's outstanding Q1 operating and financial results. The period ended March 31, 2024. I'm joined on the call today by Ryan Marshall, President and CEO, Bob O'Shaughnessy, Executive Vice President and CFO, Jim Osowski, Senior VP Finance. A copy of our earnings release and this morning's presentation slides have been posted to our corporate website at PulteGroup. com. We'll post an audio replay of this call later today.

I want to alert everyone that today's presentation includes board-looking statements about the company's expected future performance. Actual results could differ materially from those to justify our comments made today. The most significant risk factors that could affect future results are summarized as part of today's earnings release and within the accompanying presentation slides. These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports.

Now let me turn the call over to Ryan. Ryan?

Thanks, Jim, and good morning. As you read in this morning's press release, PulteGroup reported record first quarter results across many of our key financial metrics. From top line revenues of $3.8 billion to gross margins of 29.6% to bottom line earnings of $3.10 per share, it was an exceptional quarter. These strong first quarter results help to drive a return on equity of 27.3% for the trailing 12-month period. Our strong first quarter results reflect long-term strategic planning and a disciplined capital allocation process that have underpinned PulteGroup's success for more than a decade. I would suggest that another driver of our record Q1 results are decisions we made in the fourth quarter of last year, decisions that I think are emblematic of the balanced approach we take to running our business and to delivering high returns.

On our last earnings call, we talked about decisions we made in the fourth quarter of last year to not lower our prices in a chase for volume. As you will recall, demand in the fourth quarter of 2023 had started slowly, but improved as interest rates began to moderate. Had we made the decision to push incentives aggressively as the quarter progressed, we likely could have delivered higher closing volumes in 2023. With demand improving in the fourth quarter, we elected to hold our pricing and have had more inventory available for the 2024 spring selling season. The result of this decision is that we were in a position to sell and close more homes in the first quarter of 2024 and at higher margins.

That's what you see in our Q&A results. Closings and gross margins above our guide as demand dynamics allowed us to sell more homes with better net pricing. When buyer demand is rising, we're often asked how many more homes we can sell. Given the value we place on entitled lots and our focus on driving high returns, more volume is not the only answer as we work to balance pace and price to drive high returns. Within our operating model, stronger demand provides choices. We can sell more houses, or we can raise prices. Or, as was the case in the first quarter, we can do both.

What we experienced in the first quarter is that areas of strong demand last year, such as the Southeast, Florida, and Texas, continued to perform well into 2024. Even more positive is that areas that had some struggles in 2023, notably Arizona, California, and Nevada, were much improved in 2024. Consistent with the favorable conditions in the first quarter, almost all our markets displayed pricing dynamics that were stable or improving, which allowed us to raise net pricing in more than half of our communities. As you've heard us say many times, our pricing decisions are made with the goal of delivering high returns and the best overall business outcomes. Depending upon the community and the buyer's wants and needs, we may have raised base prices or lowered incentives.

The result being that net pricing in the quarter across many of our markets was up between 1% and 5%. The impact of these actions on our business performance is powerful. As Bob will discuss, we are increasing guidance for both full-year closings and gross margins. Against generally favorable demand conditions, the supply of available housing remains tight. We have the long-term structural issue resulting from a decade of under-building that has the country We are very short approximately 4 million housing units. At the same time, the available inventory of existing homes for sale continues to be low as homeowners remain locked into their low mortgage rates. Life happens, so we are seeing some additional existing homes come to market, but the numbers remain well below historic rates.

As a home builder, this is a great operating environment as we are supplying a product that a lot of people need and want. I appreciate, however, that our country's housing shortage can create hardships for today's consumers as the lack of supply keeps housing prices high. In fact, some of our recent buyers said that they made the decision to buy now because they couldn't wait any longer for rates to roll back. In a market where home prices are high and because of limited inventory, they will likely continue moving higher. Our company's ability to offer targeted incentives, particularly mortgage rate buy-downs, is a powerful tool that can help bridge the affordability gap. For example, in the first quarter, approximately 25% of our homebuyers used our national rate program.

In a world where the consensus is that interest rates will be higher for longer, our interest rate incentives likely become an even greater competitive advantage, especially relative to the existing home seller. Higher interest rates create additional challenges for today's homebuyers, but we appreciate that rates are moving higher because of a resilient economy and a strong job market. Given these conditions, we are optimistic about 2024 and PulteGroup's ability to continue delivering strong financial results.

Now let me turn the call over to Bob for review of our first quarter results. Bob?

Thanks, Ryan. Good morning. As Ryan noted, the company delivered exceptional operating and financial results in the quarter, which have us well positioned to realize outstanding financial performance throughout 2024. In the first quarter, we reported home sale revenues of $3.8 billion, which represents an increase of 10% over the prior year's first quarter. Higher revenues in the period were driven by an 11% increase in closing to 7,095 homes, partially offset by a 1% decrease in average sales prices to $538,000. The lower closing price compared with the first quarter of last year reflects a shift in the geographic mix of homes closed as we realized relatively higher closings from our southeast and flora markets, with more modest increases in our higher-priced western markets.

Closings in the quarter came in above our guide as we had available spec inventory to meet the strong buyer demand we experienced in the period. As Ryan highlighted, by choosing not In the Q1, we were able to sell and close with better margins due to the improving buyer demand activity in the quarter. Our spec production is predominantly within our first-time buyer communities, so on a year-over-year basis, we realized increased closings from first-time buyers. In the quarter, our closing mix included 41% first-time, 36% move-up, and 23% active adult. In the first quarter of last year, the mix of closings consisted of 38% first-time, 36% move-up, and 26% active adult. Reflecting the favorable demand conditions we experienced in the first quarter, net new orders increased 14% over last year to 8,379 homes.

In the quarter, we realized a year-over-year increase in gross orders and a reduction in cancellation rates. The percentage of starting backlog fell to 10.1%, down from 12.7% in the first quarter last year. Average community count for our first quarter was 931, which is an increase of 6% over the prior year, and in line with our guidance for year-over-year community count growth of 3-5%. The resulting absorption pace of approximately 3 homes per month for the quarter was above I would also like to highlight that orders in the quarter were higher across all buyer groups, which is another sign of the overall strength of the market. More specifically, net new orders among first-time buyers increased 8%, move-up increased 22%, and active adult increased 12%.

Consistent with earlier comments, the large increase in orders among move-up buyers was influenced by improving markup The next slide is a little bit more than a few weeks ago. Given this strong start to our spring selling season, our quarter end backlog increased to 13,430 homes with a value of 8.2 billion dollars. We started at approximately 7,500 homes in the quarter and ended the period with a total of 17,250 homes under construction. Our production pipeline includes approximately 7,000 or 41% spec homes, of which 1,337 are completed. We are operating just above our target of one finished spec per community, but believe carrying a few more finished specs is the right strategy, given buyers' preferences and the fact that we are still in the more active spring selling season.

Given the units we have under construction and their stage of production, we expect to close between 7,800 and 8,200 homes in the second quarter. With a strong start to the year in both borders and closings, we are raising our guide for full-year closings to approximately 31,000 homes. This would represent an 8% increase over 2023, which is the higher end of our long-term goal of growing our closing volume between 5 and 10% annually.

Closings in the first quarter had an average sales price of $538,000, which was slightly below our guide for pricing of $540,000 to $550,000.

Relative to our guide, pricing in the quarter was influenced by the geographic mix of closings, along with a higher volume of spec homes closed in the period. As we move through the remainder of the year, we expect a mix of homes closed in each quarter will result in ASPs consistent with our prior guide of $540,000 to $550,000. For the first quarter, we reported a gross margin of 29.6%, which is an increase of 50 basis points over the first quarter of 23, and a sequential gain of 70 basis points from the fourth quarter of 23. At 29.6%, our first quarter gross margin was also notably higher than our guide. Beyond Ryan's comments that we are achieving high returns by actively managing both pace and price, MIX had an impact on our reported Q1 margins.

Higher demand increased in the quarters, hence the quarter advanced, which allowed us to sell and close more homes in the period that forecast. On a relative basis, more of these closings occurred in our higher margin markets in the southeast of Florida, resulting in a meaningful increase in reported gross margins for the quarter. Based on Q1 signups and the composition of our backlog, we would expect the geographic mix of closings to be more balanced as we move to the remainder of the year. That being said, we're raising our gross margin guide for the remainder of 24. We had previously guided the quarterly gross margins of 28 to 28.5%, but we now expect gross margins in the second quarter to be approximately 29.2%.

Based on current backlogs, we would expect gross We have a close margin in the third and fourth quarters to be approximately 29%, but we still have homes to sell and close, so demand conditions over the coming months will impact the results we can ultimately report. Beyond buyer demand and near-term pricing dynamics, the Gross Margin Guide for the remainder of 24 also reflects expected changes in the geographic mix of homes we expect to close. In recent sign-up trends, we anticipate closing more homes in our West region, which currently have a lower relative margin profile due to the fact that we adjusted pricing in these markets over the course of 23 to achieve appropriate sales paces. Looking at our costs, reported SG&A in the first quarter was $358 million for 9.4% of home sale revenues.

As noted in our press release, our reported SG&A for the period includes a The PulteGraph, the PulteGraph, and the PulteGraph, the PulteGraph, and the PulteGraph, the PulteGraph, and the PulteGraph. The PulteGraph, the PulteGraph, and the PulteGraph, the PulteGraph, and the PulteGraph. Consistent with our previous guide, we continue to expect SGNA expense for the full year to be in the range of 9.2% to 9.5% of home sale revenues. Based on normal seasonality, we expect to realize increased overhead leverage as we move to the remaining quarters of the year.

Our financial services operations reported pre-tax income of $41 million for the first quarter, which is an increase of almost 200% from last year's pre-tax income of $14 million. The increase in Q1 pre-tax income was driven by better market conditions across our financial services platform. Financial services also benefited from higher capture rates across all business lines, including an increase to 84% up from 78% last year in our mortgage operations.

As noted in this morning's press release, in the first quarter we completed the sale of a joint venture that resulted in a gain of $38 million. On our income statement, this gain was recorded in equity income from unconsolidated entities. Our reported first quarter pre-tax income was a period record of $869 million, an increase of 24% over last year. Against that, we recorded tax expense of $206 million, which represents an effective tax rate of 23.7%. Our reported Q1 tax rate was impacted by energy tax credits and stock compensation deductions recorded in the period For the balance of the year This year we continue to expect our tax rate to be in the range of 24 to 24 In total our reported Q1 net income was million for per share compared with prior year reported net income of $533 million for $2.35 per share.

Earnings per share in our most recent quarter benefited from a 6% reduction in share count Compared with the prior year, as we continue to systematically repurchase our stock. Moving past the income statement, we invested approximately $1.1 billion in land acquisition and development in the first quarter. Consistent with our recent land activity, 60% of our land spend in the quarter was for the development of our existing land assets. Our Q1 land spend keeps us on track with our plan to invest approximately $5 billion in land acquisition and development for the full year, of which we continue to expect about 60% will be for development, with the remainder for the acquisition of new land positions. We ended the quarter with approximately 220,000 lots under control, of which 51% were held via option.

The purchase of several large land positions, in combination with decisions not to move forward with a few option transactions during the quarter, lowered our lot option percentage from the end of 2023. I would highlight how However, that 74% of the lots we have approved in this most recent quarter were under option. As our first quarter numbers indicate, we continue to work toward our multi-year goal of controlling 70% of our land pipeline via options. Looking at our community count, we continue to expect average community count in 2024 to increase 3-5% in each quarter over the comparable prior year period. Along with investing in our business, we continue to return capital to shareholders. In the quarter, we repurchased 2.3 million common shares at a cost of $246 million, for an average price of $106.73 per share.

In the quarter, we also opportunistically purchased approximately $10 million of our outstanding bonds. After allocating approximately $1.4 billion to investment and the return of funds to shareholders, we ended the first quarter with $1.8 billion of cash. Taking all of this into account, our quarter-end gross debt-to-capital ratio was 15.4%, while our net debt-to-capital ratio was only 1.7%.

Now let me turn the call back to Ryan for some final comments.

Thanks, Bob. As you would expect, given the strength of our first quarter results, buyer interest was high in the period as order paces increased beyond typical seasonality. That sales momentum continued into April, although we are now seeing some moderation of traffic into our communities due to the recent increases in interest rates, particularly within the Suntex brand. While the change is relatively modest and based on a limited number of days, consumer feedback suggests that higher rates are causing some buyers to evaluate the timing of their activity due to the volatile interest rate environment.

We'll continue to monitor how buyers respond to changes in the rate environment and are prepared to adjust pricing or incentives to ensure we are appropriately turning assets. During our last earnings call, we talked about the opportunity for PulteGroup to grow its business 5-10% annually. Given the lengthy land investment process, organic change in this industry takes time to accomplish, but we have been systematically planning and positioning to deliver against this goal for the past few years. I think that the company's efforts are reflected in the allocation of capital into growing our business. Including our Q1 spend, since 2021, our operating teams have invested approximately $14 billion in land acquisition and development, with plans to invest another $5 billion in 2024.

Along with the land, we have been investing in our people and working to ensure the needed trade capacity is available to support our expanding operations. I am proud to say that we have accomplished this while adhering to the same underwriting hurdles and investment disciplines which have been the cornerstone of PulteGroup for the past decade. Such discipline has allowed PulteGroup to more consistently grow its earnings, drive substantial cash flow from operations, and deliver high returns. And we have accomplished this while maintaining the superior build quality and customer experience which PulteGroup Before opening the call to questions, I want to take a minute to recognize and celebrate our team for once again being named a Fortune 100 Best Company to Work For.

What makes this recognition so important and gratifying is that it's based on feedback from all of our employees. This marked Pulte Group's fourth consecutive year on the list and is a testament to the culture of The personal caring and professional development that we work to maintain. I am proud to lead such an organization that is committed to taking care of our customers and each other.

Let me now turn the call back to Jim Zumer.

Great, thanks Ryan. We're now prepared to open the call for questions so we can get to as many questions as possible during the remaining time of this call. We ask that you limit yourself to one question and one follow-up. Dean, if you would explain the process, we will get ready to get started with Q&A.

Yeah, Stephen, thanks for the question. I think your overall target of seven years controlled is about right, and then we've stated our long-term target of optionality at 70%. We do think it will be a multi-year journey in getting there, and that's really driven by the fact, Stephen, that we want to do it in a very organic, natural way that drives ideal economics for each individual transaction. We highlighted in the prepared remarks Bob did that in the quarter, 74% of the deals that we approved were under option.

We think that type of activity over the next several years will have us arrive at our long-term target in a very natural way. When we do that, to your point, we'll be right around something just over two, two, two-and-a-half years of owned land at that point.

Yes, Stephen, it's Bob. Good morning. We didn't update the guide on cash flow. It's early in the year. We're thinking about what we're investing in the business. You can see, if you look at the balance sheet, just since the end of the year, we're up about $300 million in investment in the balance sheet, roughly half land, half house. And so, you know, to your point, we certainly expect with incremental volume and incremental margin that will generate a pretty healthy amount of cash. Some of that will be invested to meet that 5-10% growth that we've talked about. So, you know, more to come on that as the year progresses, certainly. But I think the bias would be for more cash from operations.

And to your point on capital allocation, I think we've been pretty consistent for the last 10 years since we laid out our strategy for capital allocation. A, invest in the business, pay a dividend that grows with earnings, buy back stock with excess capital against a modest debt profile. Obviously, the leverage is lower than we had anticipated. We look at liability management as part of our capital allocation. So I don't know that I'd go so far as to say cash flow from operations will equal repurchase activity. I think we've been pretty clear we're going to report the news on what our repurchases are going to be. But we obviously, in a world where we're generating cash at that level, particularly if we have less invested in the balance sheet as we move towards that 70%, it will free up capital and we'll work through what to do with that capital as we generate it.

Thanks, David. Thanks, David.

Matt, good morning. It's Ryan. Thanks for the question. We've said in the past we're not going to be margin proud, and I would tell you that remains true. As we highlighted in some of my prepared remarks today, we believe our operating platform and how we've positioned our specific community investments, we're in a great position to command excellent pricing, get pace, and price, which you saw in this most recent quarter. We, you know, given the interest rate environment that we are clearly going into higher for longer, we've got the ability to use the very powerful tool of forward mortgage rate commitments that allow us to offer a pretty attractive, you know, a pretty attractive incentive program.

Right now, we're at 5.75% nationally, and about 25% of our buyers are taking advantage of it. The other thing I'd highlight is that 60% of our business is move up and active adult, which tends to not be quite as rate sensitive as the first-time buyer.

With that first-time buyer, that's where predominantly our Centex brand, predominantly first-time buyers, and we see a higher percentage of those buyers take advantage of the four great commitments. The last piece, Matthew, that I'd probably point out is that our guide for the balance of the year assumes that the incentive load that we currently have, which on the most recent quarter's closings was running at 6.5%, we've assumed that that stays flat going forward.

Yeah, Matt, it's Bob. That mid to high single digit increase in our lot costs was in our Q1 and is expected to continue through the balance of the year. So when we gave the margin guide, we had pretty good visibility into our lot costs because those are lots typically on the ground already. So it's there. In terms of the current market conditions, you know, it's still competitive out there. You know, I've said this before, you know, land hasn't gone on sale.

And, you know, slight variations in market typically don't result in prices declining. You know, the market's super efficient on the way up, a little bit sticky on the way down. So, you know, for quality parcels, it's competitive.

Across the markets products and geographic markets are cycle times effectively normalized now for you or are we still a little bit longer than you were pre Good morning Carl Thanks for the question We saw a couple of days of cycle time improvement in the most recent quarter so we were at 128 days down from the 130 that we ended the fourth quarter of 2023 in We are still on track and still are targeting being at, you know, 100 days by the end of the year. When we look deeper at our Q1 numbers, We had some long-cycled closings that had been in production for a long time, and many cases were multifamily and condo buildings that we think kept the overall number that I just shared with you of 128 days a little bit higher than what we think is our actual run rate at this point.

When we look at a lot of our markets, we're already back to kind of pre-COVID cycle times of even sub-100 days. So we've made a lot of progress in a lot of places. We have a few markets that are a little stickier where we're working hard to get cycle times back to where we'd like them to, but by and large, we still feel that the target we've set of 100 days is very much in reach.

Outside, I'm sure there's some markets, Carl, where there is vacant investor-driven inventory that you could characterize as new supply. The majority of the markets where we operate, we think any existing resale inventory that does come to market, those are buyers that are going to go buy another home somewhere else. So we think it's largely neutral on the overall supply side.

Yeah, Anthony, we're watching it closely as I think a lot of the real estate world is. You know, where we think it ultimately goes is it'll create better transparency around the fee structure and will likely change over time the way that the providers of those services charge And the users or the consumers of those services ultimately pay. So, you know, we, realtors are an important part of our business. And, you know, we're probably 60% of the sales that we have include a buy side realtor involved. So, you know, we certainly support the realtor community. They've been an important part of our company for a long time. But we are watching the way that the landscape there will certainly change.

Yeah, a couple things happened there. It was a market that saw a lot of price appreciation in the COVID years. Affordability, we think, got strained for certain. Last year, we did a fair amount of price discovery as we worked to right-size what our go-to-market price was in those markets. You know, that combined with, I think, a general improvement in buyer sentiment contributed to, you know, the lights coming back on in the Western market. So, you know, some of the markets that we'd highlighted pretty consistently last year, Seattle, Northern California, Southern California, Las Vegas, Phoenix, those were strong contributors to our overall results in this most recent quarter. We'd expect that to continue. Bob highlighted that the relative margin contribution out of those markets will be lower than some of the other parts of our business.

We've incorporated that incremental volume that we're getting at a slightly lower margin contribution profile into our guide. So, look, we're pleased that those markets are contributing. We've got a lot of capital invested there. They're big housing markets. People want to live there for a number of reasons, you know, climate jobs, etc. So, you know, we're pleased that they're doing well.

Yeah, it was a strong first quarter. We highlighted that we saw some trends that were even stronger than normal seasonality.

The first few weeks of April have continued to show signs of strength. We did highlight that as we look at traffic, new traffic that's coming into the stores, while a limited number of days in that data set, we are seeing a small downturn that we think is reflective of the change in the rate environment. So we're going to keep an eye on it. We don't at this point think it's anything to be too alarmed about, but we're watching it.

Sure. Build costs, they were stable in the first quarter, We have a quarter, about $80 a square foot for base house. That's flat with Q4 of 23. It's actually down from $84 a square foot in the first quarter of last year. As we look at 24, we expect cost inflation on labor materials to be pretty manageable with low single digit increases, and we factor that into our guide.

Thank you, thank you.

Yeah, I think it's the strength of the market, John. We highlighted that we're raising prices in a number of our communities at 1% to 5%. That's really the driver combined, certainly in this first quarter, with the mixed differential that we had highlighted.

So is it pricing and mix a little bit better than previously expected? Yeah. And the mix, just to be clear, John, the mix was really a Q1 issue. We think that smooths out based on the relative strength of volume that Ryan highlighted out west. So we'll get more of that relatively lower margin profile in the back half of the year.

It's both, right? But you'll see some of it in Q2 based on the sales that we did in the first quarter, and then you'll see more of it later in the year. That's part of the reason for the step-down margin. The other thing that we highlighted on the call, we still have a lot of homes to sell for the back half of the year. And so the point we were making is, you know, it depends on how the demand environment holds up. If it does, you know, that's good. If the market changed, you know, you could see plus or minus depending on whether it's the positive change or a negative change.

Sam, we're not parsing the traffic data quite that finely for the purpose of this call. You know, one other data point that I will tell you, while we've seen traffic into the stores moderate over the last, you know, several days, traffic to the website's been incredibly strong. So, you know, we still think that there's high buyer demand and desire for home ownership. You know, certainly anytime there's rate fluctuations, it can cause, you know, some disruption in buyer behavior. But we think the fundamental, you know, or the overall demand for housing remains incredibly strong, and we're still in a very supply-constrained environment. So the overall thesis about this has been a strong operating environment for the industry and this company in what's been a pretty high interest rate environment.

You know, we think the environment that we would expect for the balance of the year, we can continue to show, you know, success in that type of situation as well. Well, affordability is, there's no question, it is the headwind that we'll continue to navigate for, you know, the balance of the year, and we think we've got the tools to do that.

Yeah, we targeted when we kind of kicked off the philosophy or the strategy that we had on single-family rental with Invitation Homes, and we also partnered with some other local single-family rental operators as well. While we've targeted to be somewhere around 5% of our total volume would go into the single-family rental kind of channels. You know, the current year, the closings that we have that will go into that pipeline are right kind of in that 5% range. You know, certainly the interest rate environment currently, I think, makes it harder for the single-family rental operators to underwrite their deals.

You know, we wouldn't expect that to necessarily, you know, be the case forever. But, you know, in the kind of right here and now, a little harder to make those deals pencil for those SFR operators. It's part of the reason that we've said we want it to be part of our business, but not such an outsized component that it creates disruptions in how we operate.

Well, you know, certainly on the material side, it is pretty consistent, and as Jim highlighted, our build cost per foot flat. You know, the only thing where we're really feeling any pressure there is on OSB, which has run up a little bit. You know, in terms of the land, you know, we've highlighted I've indicated that high single-digit increase in lot costs, that is candidly continuing a theme that has been going on for a number of years, and is likely to persist.

I've often described it as a conveyor belt of land. We have three years of lots that we buy at any or control at any one point in time, and they kind of roll on. The most recent year falls off Every new year coming on is a little bit more expensive and that a combination of increased land costs and increased development costs But we haven seen a step change in that if that really what you focused on So again I think you can and should expect to see our lot costs going up for the foreseeable future Got it.

Sorry, was that, are you asking sequentially or year over year? Sequentially. Yeah, so you've got 70 basis points. Certainly a part of that is going to be the strength of the relative to our guide of the strength of the market where for the spec homes that we sold, we got better pricing, which was a relative margin benefit over the fourth quarter. The other thing is the mixed shift, not just in terms of geography, which we had highlighted, but on a sequential basis. We also had a mixed shift towards move-up, which has this higher margin profile relative to first time, which is where the margin came from. I hate to use this, but there's a couple of different mixes going on.

But when you're looking at the sequential Margin performance. Certainly, it's the strength of the market relative to what we thought coming into it, and also it's a little bit more move up, which has a higher margin profile for us.

Yeah, it's interesting. I'd refer back to something Ryan offered, which is that affordability is still a challenge. And so against that backdrop, our expectation is that we will need to continue to incentivize folks. And the predominant way we're doing that today is through our national commitments and some sort of rate finance support. So our expectation is that that continues. That was our expectation coming into the year. In the first quarter, you all have heard us say it was 6.5% again, just like the fourth quarter. That's roughly $35,000, $40,000 a house. You know, in a world where rates are actually trending back up, I think that we're going to need to continue to support that. So it's, you know, it's a little bit challenging to your point, but I think on balance, our expectation is that's where we're going to need to be to meet some of the affordability needs.

It's one of the reasons we think, you know, you'll continue to see this strong market performance on a relative basis of new versus resale, because we can offer those incentives.

Yeah, well, certainly for that true entry level buyer, it's the game, right? And so, you know, we've got programs that offer them lower cost incentives, so we're giving them more rate support relative to others who have choices. And, you know, it's worth it to remember we offer a national program, but there's a lot of, you know, detail in terms of what we can and actually do offer to people and what they want to kind of access in terms of our support. There will be some people with rates moving up that will literally fall off the ability to buy a home.

That's not the case for our active adult move-up buyers. And candidly, for a lot of our Centex buyers, you look at our average sales price at $419,000 in this most recent quarter. That's not typically your true entry-level buyer. We're at a little bit higher price point. Our first-time communities are typically a little bit closer in, and so I think it depends on who your buyer is. But to answer your question about will we vary our offering, the answer is yes, we have to. You know, we are actively managing these national programs. We're buying commitments in relatively small amounts so that we don't get caught by market changes. And what it allows us to do is change our offering based on what the market is doing.

So as the market, as rates floated down, we moved our offer rate down somewhat to try and be responsive to deliver a real savings versus the street rate that they can get on their mortgage. As rates tick back up, we're moving those rates up a little bit. It's an art, not a science, but I think what you can expect us to do is listen to the consumers in terms of what they need and seek to offer them programs that give them what they need.

Yeah, we're pretty happy with where we're operating. And we look at a couple – I mean, the first thing we look at is what's the percentage of built-to-order versus spec sales. Right now, it's running around 50-50. And then, you know, we highlighted at Bob's prepared remarks, 40% of our width is spec. And we've got, you know, a little bit higher than one final per active community. So, you know, we pay attention to it closely. It's something that we spend a lot of time managing and being responsive to what we're seeing in the market. To your point, most of our spec or our syntax business is spec. We certainly have a little bit of spec in the other two brands, but Pulte and Dell Web tend to be more of a built-to-order kind of model, and we're certainly responsive to that as well.

So we're going to watch it, but in a higher interest rate environment, having available specs that you can more efficiently and effective apply the most powerful incentive to in the form of the forward mortgage rate commitments, you can do that better on spec inventory, which makes it more attractive. So you'll probably see us stay pretty close to where we're at.

Yeah, Alan, we look at sales rates every single day. It's one of the first emails that I look at is, you know, what did sales for the prior day come in at, and we look at, you know, qualitative and quantitative feedback that we get from our field operations and going through that decision-making process. You know, what I can tell you is the change in rate, never mind what it was and never mind what it's going to, just the mere fact something changed. We've seen that, you know, cause pauses in buyer behavior over the last 24 months. Anytime there's been a step change in rate and the media cycle that goes with it, that certainly has a pretty profound impact on buyer behavior.

Time does seem to cure it. The only thing that I would continue to kind of caveat and put out there is that affordability continues to be a real issue, and so we've got to balance the change there. We think one of the things that we're going to continue to do is pay attention to what the headline rate is. Bob talked about that a few questions ago. Our national mortgage rate incentives have got the flexibility to move based on what the market's doing. So, you know, we still think we can have a compelling offer out there relative to the street rate that doesn't necessarily cost us a whole bunch more relative to what we're currently paying.

The last piece, Alan, is we are going to keep our production machine moving. We are a production builder, and we're going to do that in a way that we think optimizes kind of return. So, you know, if there are price changes or discount changes that ultimately have an impact on affordability that allow us to continue to turn the asset and keep the market share that we have, we'll definitely do that.

Yeah, Ken, I want to make sure that I understood kind of the full question. Maybe I'll give you a little bit of Florida commentary, and then if there's more follow-up, I'll let you ask that. But Florida is a tremendous part of our business. We're in nearly every major housing market there, save Miami. And a big part of our business there tends to be focused on move up and age targeted. And, you know, we have some entry-level business in our Tampa and Orlando businesses, but the other big markets are predominantly move up in age-targeted.

We get a little bit of move up in Jacksonville as well, or a little bit of entry level in Jacksonville as well. So, really strong business, you know, a lot of job relocation there, a lot of, you know, folks that want to be there because they've got flexible work arrangements that allow them to work from home or work from elsewhere.

You know, the headwinds in Florida are definitely affordability. We've seen strong price appreciation in most Florida markets, and then the other kind of headwind that you've got there is around property taxes and insurance. So, certainly those things kind of play into that, but Florida continues to be a big part of our business and a real bright spot for our business as well.

Okay.

Great. Appreciate everybody's time today. We're around the remainder of the day for any follow-up questions, and we will look forward to speaking with you at various upcoming conferences and or on our next quarter's earnings call. Thanks for your time.