Q2 2021 M/I Homes Inc Earnings Call
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Hello, and welcome to the Yeah My homes, Inc. Second quarter earnings call, all participants will be on listen only mode should.
Should you need assistance. Please you know of conference special I'll start pressing the star can you followed by zero.
After todays presentation, there will be and opportunity to ask questions to ask the question. You May Press Star then 1 on your Touchtone phone.
To withdraw your question. Please press Star then 2 please note today's event is being recorded.
And all the teleconference over to Phil Creek. Please go ahead Sir.
Thanks, and thanks for joining us.
And on the call today is Bob Schottenstein, our CEO and President and Derek clutch President of our mortgage company Ann Marie Hunker, VP, Chief Accounting Officer, and Kevin Hake, Senior VP and first to address regulation fair disclosure. We encourage you to ask any questions regarding issues that you consider.
The material during this call because we are prohibited from discussing significant nonpublic items with you directly and.
As to forward looking statements want to remind everyone that the cautionary language about forward looking statements contained in todays press release also applies to any comments made during this call also.
Also be advised that the company undertakes no obligation to update any forward looking statements made during this call with that I'll turn the call over to Bob. Thanks, Phil Good afternoon, everyone and thank you for joining our call.
We had a record setting second quarter highlighted by a 97% income.
Increase and net income.
A 23% increase and homes delivered a 35% increase and revenue and a return on equity of 27%.
All of this is a result of a high level of performance across all 15 of our housing operations as.
Well as from our mortgage entitled business.
Or more of our margins for the quarter were very strong.
Despite significant cost pressures, our gross margins improved by 320 basis points over last year and.
And improved sequentially by 70 basis points from the first quarter.
<unk> 2 of second quarter level of 25, 1%.
Our overhead expense ratio improved by 110 basis points from a year ago to 10, 4% of revenues, reflecting greater operating leverage.
And most importantly, our pre tax income percentage.
Improved significantly to 14, 7% versus 10 per cent a year ago.
Our record second quarter results continue our trend of strong growth and both revenues and earnings that we have achieved over the past decade.
Since 2013.
And our revenues have grown at a compounded annual rate of 19%.
And our pretax income has grown at an even more impressive annual rate of 43%.
Demand for new homes continues to be very good and is reflected in our year to date.
New contracts, increasing by 24% and.
And our record setting second quarter, new contracts, just slightly better than a year ago with 2267 homes sold during the quarter.
We achieved record second quarter sales not.
Notwithstanding that we are operating and nearly 20% fewer communities and a year ago.
And we are intentionally limiting sales and the majority of our communities to control margins and better manage delivery times.
Given the drop in our community count.
And the difficult sales comps posed by this quarter and particularly the next quarter of the third quarter I wanted to provide a little more color on our sales results.
Last year was to say the least a most unusual year for our industry.
No.
No 1 could have predicted how our economy would fare when faced with 1 of the worst health crisis of our time.
The worldwide pandemic.
Knowing what we know now it is clear that comparisons between 2020, 1 and 2020 needs to be.
Reviewed carefully.
Our second quarter sales comps more quick we're clearly more challenging due to the unusually strong sales pace, which began in may and June of last year as our industry as a whole experienced a dramatic rebound and sales after the extremes.
Dream initial COVID-19 related slowdown in March and April of last year.
Or am I homes, we sold 31% more homes in the last year's second quarter aided by the strength of last May and June.
The increased sales pace continued and even got better.
As you all recall as we moved into last year's third quarter, where our sales grew by 71% over 2019.
It was in the late stages of last year's third quarter and frankly.
And all of the fourth quarter of last year, when we first began to limit sales.
And many of our communities.
And of course, we.
We were raising our prices to try and meet the market demand despite.
Despite these efforts we began to sell out of communities much faster than expected on top of that new community openings within our industry occurred slower than expected.
<unk> due in part to delays and the governmental approval and inspection process largely because of Covid related work from home protocols.
Thus a greater than anticipated drop in our community count.
Looking ahead, we are very well positioned to grow our communities we.
We expect to open more new communities and the second half of this year than we did and the first half.
And importantly, we expect to open a record number of new communities and both the first half of 2022 and the second half of 2022, all in support of our growth goals.
Finally, let me just say that our slowdown or decline and order growth is not indicative of demand.
And these are perhaps the best housing conditions, we've seen considering demand buyer demographics and buyer sentiment and the very strong.
The quality of our buyers.
We will continue to manage or limit sales in many of our communities on a go forward basis in order to control deliveries.
And maximize margins.
And to date, we've seen little if any evidence of pushback on price.
All of our product lines from the attached town homes to our diverse single family lineup of homes as well as our homes geared to empty nesters have performed at or above expectations.
Speaking of our product line, our smart series, which represents our most affordable line of homes connected.
The credit used to perform at a very high level.
Smart series sales and the second quarter accounted for just under 40% of total company sales compared to about 35% of year ago.
We are selling our smart series homes, and 35% of our communities compared.
Continued to 30% of the communities a year ago.
The average price of our Smart series homes is now just under $350000 compared to roughly $330000 at the end of the first quarter.
As we've said repeatedly over the last several years when discussing.
And our smart series line of homes on average our smart series communities produce better sales pace better margins faster cycle time, and thus better returns.
Our backlog sales value at the end of the quarter was $2.5 billion.
And all time.
Compared to the record and 70% better than last year.
Units and backlog increased by 49% to an all time record 5488 homes with an average price of homes and backlog equal to $454000. This is 15.
The percent higher than a year ago.
Now I'd like to provide a few comments on our markets as I mentioned at the beginning of the call. We experienced strong performance from each of our 15 homebuilding divisions with substantial income contributions from most of our markets.
Quarter led by Orlando, Tampa, Minneapolis, and Dallas, Columbus and Cincinnati.
Our deliveries increased by 18% over last year and our southern region reminding you that our southern region consists of our 4 Texas markets 3.
For the markets and 2 North Carolina markets deliveries and the southern region increased to 1297 homes or 57% of the total.
The northern region, which is the balance of our markets 6 to be exact and Ohio, Indiana, Illinois, Minnesota.
The Florida, and Michigan contributed 961 deliveries, which is roughly 31% better than a year ago.
New contracts and our southern region increased by 3% for the quarter and decreased by 4% and our northern region.
Our owned and.
Trolled lot position and the 9 the markets, representing our southern region increased by 35% compared to last year and increased by 15% and the 6 markets that comprise our northern region.
34% of our owned and controlled lots of in the north with the balance.
Roughly 66% and the south.
We have a very strong land position companywide, we owned approximately 18300 lots, which is roughly a 2 year supply on top of that we control via option contracts.
And additional nearly 26000 lots and so in total our owned and controlled lots are slightly.
Slightly more than 44000 lots, which is just below a 5 year supply.
Perhaps most important 59% of those near.
<unk> 4000 lots are controlled under an option contract, which gives the <unk> homes significant flexibility to react to changes in demand or individual market conditions.
Before I turn the call over to Phil I'll, just make a few closing comments first our financial condition.
Strong with $1.5 billion of equity at June 30th and of book value slightly over $50 a share we.
We ended the second quarter with the cash balance of $372 million and zero borrowings under our $550 million unsecured revolving credit facility.
And as various resulted in a very healthy net debt to cap ratio of 16%.
We believe our low leverage and substantial cash generation allows us to allocate capital to share repurchases, while also continuing to make significant investments and replenishing our land position.
This are the continued growth of our company.
As a result as stated in our press release, we announced today that our board of directors has approved a new $100 million share repurchase authorization. This replaces our existing $50 million share repurchase authorization, which had.
And $17 million of remaining availability of $100 million share repurchase authorization reflects our expectation of the ongoing strength and our business and our commitment to creating long term shareholder value, while always maintaining low debt leverage.
Finally, and closing our company has an excellent and is in excellent shape given.
Given the strength of our backlog as well as the strength of our land position. We are poised to have an outstanding 2021, and with our planned new community openings. We are equally excited about our prospects.
<unk> for a strong 2022.
Phil Thanks, Bob New contracts and second quarter increased to 2000, and 267 and a second quarter record of $22.61 for last year's second quarter and last year's second quarter was up 31% versus 2019.
Same period.
Year to day, we have so 5376 homes, 24% better than last year, our new contracts were up a 103% and April down, 11% and may and down 33% and June our sales pace was 4.2 and the second.
<unk> compared to last years, 3.4 and our cancellation rate for the second quarter was 7%.
We continue to manage sales to closely align our sales with our ability to start and deliver our homes along with focus on our margins.
Especially given our record backlog of 50.
<unk> quarter, and 100 houses as to our buyer profile about 51% of our second quarter sales were the first time buyers compared to 56% and the first quarter and addition of 43% of our second quarter sales were inventory homes. The same percentage of the first quarter our community.
The count was 175 at the end of the second quarter compared to $2.20 at the end of last year's second quarter and the breakdown by region of 70 lined in the northern region, and 96 and the southern region.
During the quarter, we opened 16, new communities, while closing 28 during last year's second quarter.
We opened 22, new stores and closed 25.
We delivered an all time quarterly record of 2250 and homes and the second quarter.
And year to date, we have delivered 4277 homes, which is 28% more than last year production.
And cycle times continue to lengthen and we have started over 5000 homes and the first half of this year, which is 1500 more homes than the first half of last year.
Revenue increased 35% and the second quarter, reaching an all time quarterly record of $961 million.
And our average closing price for the quarter was 411008% increase compared to last year's second quarter average of 379000 and.
Our second quarter gross margin was 25, 1% up 320 basis points year over year, our construction and land.
Development costs continued to increase recently, we have seen some we've seen lumber costs decline and some of our markets.
And our second quarter SG&A expenses were $10.4 revenue, improving 110 basis points compared to $11.5 a year ago. This reflects greater.
Operating leverage and it was our lowest second quarter leverage and our company history.
Interest expense decreased $2.1 billion for the quarter compared to last year.
<unk> incurred for the quarter was $10.1 million compared to $10.3 million a year ago.
This decrease is due to.
The lower outstanding borrowings and the second quarter and also higher interest capitalization due to more inventory being under development.
We are very pleased with our improved returns for the quarter. Our pretax income was $14.7 versus 10 last year and our return on equity was 27%.
The 17% of year ago.
And during the quarter, we generated 156 million of EBITDA compared to $86 million and last year's second quarter.
We generated 174 million of positive cash flow from operations, and the second quarter compared to generating $83 million a year ago.
And we had $22 million and capitalized interest on our balance sheet about 1% of our assets.
And our effective tax rate was 24% and and the second quarter same as last year's second quarter, and we estimate our annual rate for the year to be around 24% and our earnings per diluted share for the quarter.
Order increased to $3.58 per share from of $1.89 per share last year.
And that I will turn it over to Derrick clutch to address our mortgage company results. Thanks, Phil.
Our mortgage and title operations achieved record second quarter results and pre tax income revenue and number of loans.
Originated.
Revenue was up 50% to $28.6 million due to a higher volume of loans closed and sold along with higher pricing margins and we experienced and the second quarter of last year.
Pretax income was $18 million, which was up 66% over 2000.
1 of these second quarter.
The the loan to value on our first mortgages for the second quarter was 84% compared to 83% last year.
78% of the loans closed in the quarter were conventional and 22% FHA or VA. This compares to 77% and 23.
The extent, respectively for 2022nd quarter.
Our average mortgage amount increased to $336000 and 2021 second quarter compared to $311000 last year loans.
The loans originated increased to a second quarter record of 1.7.
And 3% loans, 24% more than last year and the volume of loans sold increased by 48%.
Our borrower profile remains solid with an average down payment of over 16% and and average credit score of 747%.
Up from 746 last quarter.
Our mortgage operation captured over 84% of our business and the second quarter compared to 83% last year.
Finally, we maintain 2 separate mortgage warehouse facilities that provide us with funding for our mortgage originations prior to the sale to investors at.
And at June 30, we had 100.
<unk> hundred $4 million outstanding under the MF warehousing agreement, which is a $175 million commitment that was recently extended and expires in May 2022, and we also had $34 million outstanding under a separate $90 million repo facility, which expires in October.
30 this year.
Both facilities are typical of 364 day mortgage warehouse lines and we extend annually.
Now I'll turn the call back over to Phil Thanks, Derrick as far as the balance sheet. We ended the second quarter with the cash balance of $372 million and no borrowings under our unsecured revolving credit.
Facility and during the second quarter, we extended the maturity of our credit facility to July 2025, and increase the total commitment to $550 million.
Total homebuilding inventory at June 30 was $2.1 billion and increase of $250 million from last year.
And our unsold land investment at June 30 of $782 million compared to $810 million a year ago.
At June 30, we had $497 million of raw land and land under development and $285 million of finished unsold lots, we owned 3872 unsold.
Finished lots with an average cost of 74000 per lot and this average lot cost of 16% of our 454000 backlog average sale price. Our goal is to own a 2 to 3 year supply of land and.
And during the second quarter, we spent 150 million of land purchases.
<unk> and $87 million on land development for a total of 237 million, which was up from $156 million and last year's second quarter.
And in the second quarter, we purchased about 4000 lots of which 78% will roll in 2022nd quarter, We purchased about 21.
<unk> thoughts of which 67% or Raul and general most of our smart series communities, our role and deals and have above average company pace and margin and at the end of the quarter. We had 59 completed inventory homes and of 169 total inventory homes and of the total.
It'll inventory 498 are in the northern region and $3.71 are in the southern region and at the end of the first quarter. We had 98 completed inventory homes and 7 or 8 total inventory homes.
This completes our presentation, we'll now open the call for any questions or comments.
Yes. Thank you.
And I'll begin the question and answer session.
The question you May Press Star then 1 on your Touchtone phone.
If you're always and speakerphone. Please pick up your handset before pressing the he's sort of try your question. Please press Star then 2.
At this time, we will pause momentarily to assemble the roster.
And the first question comes from Ivy Zelman with Zelman and associates.
Hi, good afternoon, congrats on the great quarter guys.
So Bob if we think about smart cities and you talked about that the home was $3.30 at the beginning of the year of $5.50 on average now recognizing that the pricing power.
And it's obviously still very strong do you think about is there a ceiling as to where the consumer will start pushing back that's the.
My first question and my follow up question is if we look at that home, assuming you are sort of consumers signing a contract for let's say of $350000 home today.
And then we know that there is inflation and every category within the building materials that go into that home and the appliances and everything else and also of course labor is going up as well.
The consumer is obviously not going to have to pay that difference, let's say that house and $3.50, when they sign the contract, but when they close the homes that.
And theoretically should be 400000 don't you have to eat that 50000, and therefore isn't the margin on the home going to be compressed.
Thanks, Ivy first of all good to hear you.
Yes.
Thanks to the first question.
Absolutely there is the ceiling we haven't.
Reached it yet.
There is a ceiling on everything and.
I know thats not what you meant and I mean, there will come a point of price price and keeps going up and up where you could get to a point, where you have to either cut prices, but we're nowhere near that yet we continue to see either steady or improving margins.
And as far as how we manage and this crazy Super inflationary cost and the cost.
The environment that we have been and really for over a year.
We've been able to stay ahead of it.
Is it because we're a mission no and some ways the.
Strength of the market has helped.
<unk>.
Over up what otherwise would have been at.
The margin erosion.
But the other thing is.
As much as possible, we try not to sell too far out in front of.
As much as possible, we tried it and make certain we absolutely know all of the costs when we price. It. So we don't have to see.
And erosion like you described and.
And then the other thing is that today and most of our markets. We have a pretty healthy contingency built in on the cost side the cover unexpected.
Stuff so.
Look.
And if.
If if if if conditions stabilize somewhat.
And that contingency is there that would just go straight to margin.
Right now most of that contingency is being used just to deal with things.
You know.
We're very pleased that our margins ended up at about 25% but for.
For all of the inflation and clearly they would have been higher our smart series communities or are averaging higher than the 25% that's a companywide average but.
Look it's never perfect, but we've been able to manage the situation and so far.
We haven't seen.
Situations, where we're pricing our buyers out of the market.
Thanks, Bob and good luck and I appreciate your time.
Yes.
Thank you and the next question comes from Alex Barron with the housing Research Center.
Yes, thanks, guys.
Yes. Thank you.
You mentioned that.
Well I guess I'll start off with the you.
Do you guys track what percentage of the buyers that are showing up to there are coming in from out of state versus say 6 or 12 months ago.
I'm not aware that we do that I'm looking at Derek clutch, who runs our mortgage.
The operation they tend to have a lot of that data, but I don't know the we have that information handy.
We don't track that.
And it would average so significantly market to market.
Okay.
What's the issue Alex that you are concerned about.
I guess the the main question is whether the people who are moving away from New York to Florida.
From California, and Texas, those guys have a lot more money and.
And.
And the bidding situation can outbid the local buyers and so I'm just kind of wondering.
If that's you know and in some ways driving the strong price appreciation and the fact that people arent, giving any pushback because and.
In the sense you know they once they've made the decision to jump across state lines, I mean, they're there and so they're gonna pay whatever it takes.
I guess the the question is.
The pricing.
The local buyer I would answer it this way 1 I'm not sure but my intuition is that while there is clearly some of some of our buyers and our competitors' buyers.
Our individuals that are moving from markets, where they maybe have sold their house and be sitting on a lot of excess cash.
Cash as a result, they're now moving into a market warehousing is cheaper, but I don't think its of material enough percentage of the population to really be impacting.
Impacting price that much you might be right, but that's not what.
That's not what I, where I would come down I think of lot of which driving.
And the demand for I think the biggest factor driving the demand.
And the and the pace of new home sales has been the noticeable increase and millennials moving from renter ship to home ownership and I think that that has really been the largest component incremental component.
Of the growth and new home production.
Okay.
Helpful.
Maybe the question Theyre not even coming they are not coming from the house to sell Theyre coming either from Brian Barents house or from an apartment.
Net.
Right, yes that makes sense.
The other question is I think the.
And Phil said you guys have started.
<unk> thousand houses in the first.
Half of the year I'm curious if you could break that out by quarter and also what's the outlook for future starts I mean, I know you guys are limiting sales. So are you planning to also limit starts or are you accelerating starts.
Starts and selling homes at a later phase of the construction of how how are you guys thinking about starts and the second half of the year.
You know Alex when you look at that 5000, and the first half and there was a little over.
2000, and the first quarter and.
And then closer to 3000 and the second quarter.
So starts did accelerate and the second quarter.
We're really pleased.
With the production increase.
And you know last year, we closed 7700 homes and obviously our run rate right now and closings is a lot higher than that so we are pleased with the extra production.
We're getting we also were able to put a few more specs on the books at 630 versus $3.31. So again, we are happy there.
So we feel really good where we are when you start trying to grow businesses, a lot more than 10 and 15%.
And that can really put some strains on things, but there also are and.
The number of issues now and every market is a little different.
Windows are a big issue and certain markets plumbers are an issue and markets, but we feel very good about where we are very good about our volume increase Bob talked about our backlog average.
Sale price being up 15% our margin to 25%. So we think we're really poised well to continue producing really strong results.
Okay, and if I could ask 1 last 1.
Given all of those constraints and delays and.
And Bill Times Curie.
Curious to know if you have an estimate of how much bill times of extended out and and also whether you guys have some type of closing guidance for the year that youre aiming at.
No closing guidance or anything, but you can see that we've closed over 2000 houses.
A couple of quarters. So that's that's good growth for us.
So we feel good about that you know when you look at cycle times.
Gone up a couple of weeks.
Look in general in the past, we kind of got houses and the field in August we would get them closed at calendar year. This year the.
The way things are are we pretty much needed the houses to be in the field by the end of June of course of the Smart series are quicker and general than the other but it's definitely and lengthened out another couple of weeks just in the quarter.
Okay. Thanks, so much and good luck guys.
Thank you.
Thank you and the next question comes from Jay Mccanless with Wedbush.
Hey, guys.
So few questions.
I think the first 1 Bob in your prepared comments you were talking about starting more communities and fiscal first half 'twenty, 2 and second half 'twenty 2.
But what we and comparing that to to what you've done in 'twenty, 1 or just the historical average.
What's the comparison, yes, let me let me, let me restate that and the answer is yes really on the parts of that we expect to open more communities new communities.
And the balance.
Year than we did and the first half of this year and number 1 and then number 2.
And the first half of 'twenty 2.
And in the second half of 'twenty 2.
We expect to open a record historical record number of new communities and each of those halves of the year.
Okay.
So we could look back at what you guys did for openings in previous years, and Thats kind of be irrelevant stat correct. It's not we're not talking about starting of community here, we're talking about actual openings ready puts this has opened the this is opening for sale.
Hey.
Yeah, right now as you know.
We're.
Even though not all communities are created equal.
And we're running at about 20% fewer stores or communities than we were last year at this time.
And.
That situation, we will see.
Significantly.
The change for the better.
As we move through the next 6 to 8.
18 months.
And Jay just to kind of make the numbers easy for you and the <unk>.
First half of this year, we opened 37 new stores.
And again Bob's references, we'll do more than that and the second half.
And then if you look at last year we.
39 of the first half and 30 of the second half of last year again, just to give you some reference.
Okay, 39, and the first half and 30 and the second half you said, yes.
And last year, we opened 69 stores all year.
Okay great.
And then.
My next question.
I guess kind of a 2 part question, what's the average time lag between starting a community from from Raleigh, and and opening of currently but then also of the municipal headwinds you talked about extended to the land development side as well as the actual building the house side.
The opening well the headwinds that I referred to were strictly on the they've been on both sides, but 1 of the things that's delayed us getting certain new communities open is the.
With the munis is the municipal headwinds with work from home protocols, and and frankly reduction and staffing.
And in some select the municipal.
<unk>, that's an industry wide issue not 1 that's just unique to us but.
The first question you asked what's the typical time on a raw land deal from the day you start start raw land development until you get opened.
That can.
That can vary pretty.
Significantly it could be and.
On some smaller deals where there is fairly simple phases and no off sites as little as.
8 to 9 months from the time, you complete that phase and then maybe get your model of <unk>.
Or it could be as much as 12 to 15.
Months, and places where the developments more complicated more impacted by weather not all months during the year are equal and all of our markets, it's very very hard to generalize and that situation.
But thats why when I say.
And 2022, we'll open a record number of new communities.
More than we've ever opened and any single year and the history of our company, that's taking all of that into account.
Okay.
And that's based on what we know and expect today and we're far enough along the we can make that statement.
That's great.
Hum.
And then I guess.
And the other side of this is your closeouts and with metering sales I mean, it looks like April was an easy COVID-19 comp and then I guess, the slow and the sales pace down that's what drove the negative comps and in May and June.
But.
And we love the name that's part.
And that's part of the reason another thing that drove them was 20% of fewer stores.
Right. So you got to think about 2 things impacting order growth, yeah, and again, just a little more information J when you look at last year.
Last April we sold 400 houses.
Last may and this is 2020.
We sold 800 houses.
Last June we sold a thousand houses.
So the $22.61 last year again of 1000 and were in June and 800 and May very tough comps.
And again, we felt very good that we did surpassed that this year with community count down.
Such as it is.
Yeah absolutely.
I guess the the question though is.
It.
Is there any quantifiable effect on how many communities are closing out now that you slow the sales pace down I mean is it the thing where if you hadn't slowed the sales pace down you would of course.
As of about 10% more of the 15th.
In hindsight.
It's hard for me to say this because our margins were so strong and our returns are so strong.
Our return on equity is 1 of the best and the entire homebuilding industry.
I'm really really proud of our performance but.
Close that we didn't really start slowing or metering. The use your term sales and any of our communities until late third quarter of last year by that point, we had already been running at a run rate of close to 1000 and sales of month for almost 3.4 straight months had.
And we started metering sales earlier, we probably would have a.
But for the sell today, but and a few less communities closed.
<unk>.
We also improved our profits by 100% and.
And our companies and the best financial shape ever I'm, not going to look back and wish we had done a b or C different because you never know what's going to happen.
When the pandemic.
The first came on the scene in March of last year, none of the homebuilders and do what was going to happen next no 1 did.
Some of our competitors furloughed and laid off employees and only the hire them back. So you had a lot of things happening and the markets that were very very hard to know and even when sales took off in may and June of last.
The first.
Who knew how long that was going to last it's you've seen so implausible and light of the fact that half of half of the.
The industries and the United States were either closed or under water and the homebuilders homebuilders are selling houses like never before so it was really hard to reconcile a lot of that at the time, we did what we thought was best we started slowing.
Year was down late last year.
Maybe we should've started a little sooner, but we are where we are we like where we are and we're really optimistic about what lies ahead and the ethane and I'll add to that Jay is that when we get down to a few lots and youre better off to go ahead and get out of the community. So we don't play.
<unk> and say, let's take 3 off the market for 45 days. So we still have and open community at the end of the quarter because if we can go ahead and get sold out and closed out of the community get the model closed down.
Go to a new site and it makes our operation of lot more effect.
Gabe So again, we're trying to make the best business. The decision we're pretty much getting opened what we thought we would get open because when we give our internal budgets and estimates and so forth.
We tried to allow a little bit of time extra for land development and most situations, we don't open until.
The fact that was complete we obviously try to fast track models.
<unk>.
We're getting opened pretty much what we thought we would get open and what's changed continually as we're getting food communities quicker, but oftentimes that's the best business decision also but we are excited as Bob said about what we have in front of us.
The mall last year, we spent a little over $700 million and land. Obviously, we're looking and if you just look at the first half of the year. We're looking at spending a lot more of this year on land and that has to come out. So we are looking for a lot more communities to open next year.
Alright, and is it fair to say that the close.
Closeouts of or a percentage of the Closeouts. We're seeing now is just the tail end of the strong sales activity from the back half of 'twenty and.
And now now that you've started slowing things down and that's going to help slow the rate of closeouts.
Yeah, I'm not sure I understand the question.
I mean, it will just flow.
And what I'm, saying is when you were running at.
The fairly high the sales pace in <unk>, and <unk> 'twenty or the.
Communities that are closing out and now homes that you sold back then.
Or at the end of the third quarter and now. These communities are closing out now is that why closeout seem to be running a little bit faster than we would have.
If the paid the.
Yeah that makes sense, because if you look at our Closeouts Jay and the.
And the first quarter of this year, we had 36 closeouts and the second quarter, we had 28.
So we had 64 of Closeouts of the first half we had 48 close out the second half of last.
And then till the year, so yeah, I mean, when our sale of started picking up in April and May It takes 9 months or so to get through that so that's probably a good assumption.
Okay Alright, good thank you and then.
And no other costs are rising, but the the decline in lumber price it seems to be.
Pretty dramatic.
And stayed equal right now when do you think the gross margin impact from those higher lumber costs is going to finish running through the income statement.
Yeah.
Yeah.
And our market share a little different is the way they deal with lumber depending on if you're on a 30 day lockup.
The 3 month lock of those type things and those situations.
Our vendors that have bought some higher price and lumber it takes a little longer to work through that.
Most of that lumber is based on starts or whatever so if I were asking when the guessing when the highest cost of lumber is going to get through I would say.
That would be by the second quarter of next year.
Okay.
Okay, and then the last 1 I have and I'll jump back in queue.
What percentage of your Smart series sales are you getting up to like the dry and I guess the.
And spec type level before you go ahead and accept the contract in that zone.
Hardly any.
The hardly any and very few of our markets.
Are we holding houses off the market until they get to a certain construction level, we're really not doing that very often.
Driving.
Handling and more on okay, and maybe we're going to sell 5 and there this month.
I mean, the foundation made the slab may be and there may a little bit of construction going on but no theres not that much of a let's make sure we get the house drywall before we sell it.
Yeah.
Okay, alright, thanks for taking my questions.
Thank you thanks Jay.
Thank you and runs again. Please press Star then 1 of you would like to ask the question.
Okay.
Alright, and as there are no more questions.
And at present time and would like to return the Florida, Phil Creek for any closing comments.
Thank you very much for joining us and look forward to talking to you again next quarter.
Thank you.
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