Q2 2022 M/I Homes Inc Earnings Call
During the quarter, we began experiencing noticeable moderation in demand as a result of the unprecedented rapid rise in the 30 year mortgage rate.
Combined with continued inflationary pressures and overall concerns with housing affordability.
Traffic, both online and foot traffic in our models has clearly declined from the robust levels. We saw throughout all of 2021 and certainly the beginning of 2022.
This drop off in both demand and traffic has impacted our sales.
Typically we sold 1820 homes during the quarter a decline of 20% from the record 2267 homes that we sold during 2021 second quarter.
During the quarter. It should be noted that we were operating at 8% fewer communities on average than a year ago.
The second quarter, we sold three five homes monthly per community well ahead of our sales pace and any prior second quarter over the last decade with the exception of last year.
Our smart series, which is our most affordable line of homes continues to be very successful and a leading contributor to our sales performance.
During the quarter, our smart series sales comprised roughly 50, 50% of companywide sales compared to 40% a year ago.
And we continue to see better monthly sales pace.
At our cycle time, and better gross margins and our smart series communities.
Now I will provide some additional comments on our markets.
We experienced strong performance from all of our divisions in the second quarter, but with particular substantial income contributions coming from Dallas, Minneapolis, Tampa, Raleigh, Columbus and Charlotte.
However, given that we are operating in fewer communities than a year ago as well as the declining market and the market conditions discussed earlier, new contracts for the second quarter and our southern region, which consists of nine of our markets decreased by 21% and decreased by 18%.
In the northern region, which consists of the other six markets.
Deliveries in the southern region decreased 13% from last year deliveries in the northern region increased by 4% from last year.
53% of our deliveries came out of the south.
47% from the northern region.
Our owned and controlled lot position in the southern region increased by 12% compared to last year.
And our owned and controlled lot position remained at the same level as last year in the northern region.
32% of our owned and controlled lots are in the north while 68% are in the southern region.
While we have over the last year sold through communities somewhat faster than expected. We are on track to open a record number of new communities and the balance of 2022 and in addition to further grow our community count in 2023.
We have an excellent land position.
Any wide we own approximately 24800 single family lot or lot equivalents, which is roughly a three year supply.
Of this total 31% of the owned lots are in the northern region, 69% in the southern region.
On top of the owned lots, we control via option contracts and additional nearly 23000 lots.
In total our owned and controlled lots increased 8% year over year to approximately 47500 lots or roughly a six year supply.
Importantly, almost half of the lots that we own and control our controlled pursuant to option contracts, which gives us tremendous flexibility to react to changes in demand or individual market conditions.
Before turning the call over to Phil Let me make a few closing comments.
Clearly there is growing uncertainty on a number of macroeconomic fronts.
And choppy market conditions are likely to persist for some time.
That said housing fundamentals remained very solid with an under supply of available homes and extremely favorable long term demographics.
Moreover, as we head into more challenging times my homes is in excellent financial condition.
Our balance sheet is the strongest it's ever been.
We ended the quarter with record shareholders' equity of $1 8 billion.
An increase of 24% over a year ago.
Book value of $66 per share cash of $188 million.
Zero borrowings outstanding on our $550 million credit facility, and our homebuilding debt to capital ratio of 28%.
Looking ahead, we believe we are well positioned to manage through these changing and uncertain times given the strength of our balance sheet, our low debt levels, our record backlog, our diverse product offering and are very well located communities.
Bill.
Thanks, Bob as far as financial results, our new contracts were down 12% in April down 15% in May and down 34% in June and these comparisons are to last year's record second quarter sales.
To our buyer profile about 55% of our second quarter sales were to first time buyers compared to 54% in last year's second quarter.
In addition, 51% of our second quarter sales were inventory homes compared to 44% in 2021 first quarter.
Our community Count was 168 at the end of the second quarter compared to 175 a year ago.
The breakdown by region is 189 in northern region is 79% in the southern region.
During the quarter, we opened 20, new communities, while closing 28 during last year's second quarter, We opened 16, new communities and closed 28 and.
In the first six months of this year, we opened 51, new communities versus 37 in last year's first half.
This year, we plan on opening a record number of new communities.
Ending 2022 with about 200 communities.
Started 2700 homes in the second quarter down slightly when compared to last year's second quarter, and we started at 5100 homes during the first half of the year.
As of June 30, we had 6300 homes in the field versus 5100 homes in the field a year ago, which is up 24%.
Our cycle time was flat in the second quarter of 2022 versus the first quarter and our construction costs overall were up slightly.
Revenue increased 8% in the second quarter, reaching a second quarter record of $1 billion.
And our average closing price for the second quarter was an all time record 477060.
16% increase when compared to last year's 411000 backlog average sale price is 519000 up from 454000, a year ago and our backlog average sale price of our smart series is 430000.
Our second quarter gross margins were $27 three up 220 basis points year over year, and up 250 basis points over the first quarter.
Second quarter SG&A expenses were $9 seven of revenue, improving 70 basis points compared to a year ago and.
Our interest expense increased slightly for the quarter compared to last year.
Very pleased with our improved returns for the second quarter, our pretax income was $17 five versus $14 seven last year.
Our return on equity was 27%.
During the quarter, we generated $195 million of EBITDA compared to $156 million in last year's second quarter.
We had 27 million of capitalized interest on our balance sheet about 1% of our assets are.
Our effective tax rate was 25% in the second quarter compared to 24% in last year's second quarter.
Our earnings per diluted share increased to $4 79 per share from $3 58 last year up 34%.
In the first half of this year.
We repurchased 860000 shares of our outstanding common shares for $40 million.
About $25 million in the second quarter and $15 million in the first quarter.
This leaves us with 108 million available under our repurchase authorization and then the last four quarters, we've spent $92 million buying back stock repurchasing 6% of our outstanding shares. Our current plans based on existing market conditions are to continue repurchasing shares.
Now I'll turn it over to Derek to discuss our mortgage company results. Thanks, Phil.
Mortgage and title operations achieved pretax income of $8 7 million.
Compared with $18 million in 2020 one's record second quarter.
Revenue decreased 32% from last year to $19 $4 million due to a lower volume of loans closed and sold along with significantly lower pricing margins due to continued competition for purchase business.
The average loan to value on our first mortgages for the second quarter was 82% compared to 84% last year.
80% of the loans closed in the quarter were conventional and 20% FHA or VA is Paris to 78% and 22% respectively for 2021 second quarter.
Our average mortgage amount increased to $384000 in 2022 second quarter compared to $336000 last year.
However loans originated decreased to 1343 loans, which was down 21% from last year, while the volume of loans sold decreased by 16%.
Our borrower profile remains solid with an average down payment of almost 18% and an average credit score of 748.
Finally, our mortgage operation captured 77% of our business in the second quarter compared to 84% last year.
I'll turn the call back over to Phil Thanks, Derik as far as the balance sheet. We ended the second quarter with a cash balance of $189 million and no borrowings under our unsecured revolving credit facility.
Our capital structure is very strong with our bank line available until 2025, and our senior notes maturing in 2028 and 2030.
Total homebuilding inventory at June 30, 22 was $2 8 million, an increase of $700 million from last year with our higher backlog being 20% of this increase.
So land investment at June 30 was $1 1 billion compared to $800 million a year ago.
At June 30, we had $775 million of raw land and land under development and $370 million of finished unsold lots.
In 2022 second quarter, we spent 121 million on land purchases and 111 million on land development for a total of $232 million, which was down slightly from last year's second quarter.
We have a strong land position at June 30th owning 25000 lots and controlling 48000 lots. We continue to focus on owning a two to three year supply of land.
We ended the quarter, we had 91 completed inventory homes.
1732 total inventory homes.
The total inventory of 899 are in the northern region and 833 are in the southern region.
June 30 of 2021, we had 59 completed inventory homes and 869 total inventory homes.
This completes our presentation, we'll now open the call for any questions.
Thank you we will now begin the Q&A session.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
As a reminder, all time, please press star two.
Do you have a first question on the line from.
Hi, gentlemen.
Please go ahead when you're ready.
Hi.
Nice results and thanks for taking my question.
Thank you.
You mentioned last quarter, you expected that a drop in lumber was roughly six months away from being reflected in your gross margins.
So given the strong sequential rise in <unk> I'm, just wondering if those impacts were pulled forward or if there was.
More to the large spike sequentially that we should be considering.
I'll answer the first part of that and then Phil I think can maybe.
Yeah.
Add a little bit more detail I think we are just beginning to see the.
The drop in lumber are reflected in our closing margins.
Clearly.
Most of the homes that were closing during the quarter.
<unk>.
Vast majority of them I would say did not reflect the what has now been a pretty sharp decline in lumber. So I think that we will get some benefit.
Most of the benefit of that on a go forward basis fell out of what you want to add anything to that yes margins are just very very hard to predict you know we have been getting benefit from lumber again, a lot of that will be felt in the second half, but other items are still going up.
Also about half of our sales are to specs.
And we are anticipating will probably have to do a few things perhaps cost of locking interest rates may be some by bounds, who knows what incentives might be there. So it's just hard to predict margins, but obviously, we're very focused on doing all we can.
Got it thanks for the color.
My next question is regarding <unk>.
Some some deals you may have under option contract are you re re underwriting any of those deals and how are you kind of thinking about options you have under contract to take down a lot.
The next three to six months.
Great question, obviously, you know as market conditions change you've got to react when both when things get better and when things begin to moderate.
And.
In terms of the Big picture.
Our focus and approach towards land has not changed and will not and that is our goal is to secure premier locations. Our goal is to not own more than a two to three year supply at any one time and our goal is to keep roughly half if not more than half control pursuant to option contracts and we.
Where possible to buy finished lots rather than take on the risk of development those goals existed last year or the year before the year before and those goals. We'll continue having said all of that given the change in conditions on almost any deal that is getting ready to close we are revisiting the initiative.
The underwriting metrics that were applied at the time. The deal was approved quite often we will approve the deal and then they go through 612 18 months of further entitlement.
Our engineering process.
And before we're ready to pull the trigger and get ready to close.
Routinely we would revisit that that process is even more rigorous today with the underlying assumptions being reviewed and in almost every instance altered because conditions on the ground changed so.
We're doing I assume that you would do if you were in our seat which is to re look at everything in.
In light of what we know today and what we believe will occur tomorrow and not hope for things to get better, but rather believe that things may stay like this before.
For some extended period of time not all deals are the same the purchase of 30 finished lots in one bulk take down is it a relatively affordable price is obviously very different than a 400 lot.
We take the risk of development over a three or four or five to six year period, but in each case, we are applying the discipline of looking at and seeing if the deal still makes sense, we have been able to.
Managed this way.
Coming out of the great recession, and I think that flexibility has served us very well.
In quarter out year in year round, if you look back over the last 789 years, I think you'll see that nearly half if not more than half of our land position was was tied up pursuant to option contracts and while we've had to walk away from very few.
We have the right to do so and that's a good position to be in.
Got it thanks, a lot for all that color and just if I may one quick follow up I know last quarter, you mentioned about 70% of the lots that you purchased four raw I'm wondering if perhaps you are trying to limit your.
Self development exposure if that percentage has changed at all towards the finished lot kind of how that breakdown has shaken out.
No that's a great question.
<unk>.
I think it depends.
Company is in great shape that said, we're not blind to the fact that things have slowed down we're being more careful with all of our expenses were being more careful with new hires we're being more careful with.
Land development expense as well as land acquisition and you know trying to just see what's happening in the market.
We believe firmly that there's another supply of housing we believe that long term the prospects of household formations.
And stabilization of homeownership throughout the markets. We operate in is something that will provide tremendous long term.
Momentum for housing I think that is a pretty widely shared view not just within the homebuilders, but also within most economists that have weighed in so we think that things long term look really good but here over this next period of time until things settle out a little bit.
We're going to be more careful.
Our land position is very good right now and well vintages.
I'm excited about the fact that we're opening up a record number of new communities in the back half of the year all of which were put into contract on.
On average probably two to three years ago.
Reflecting prices and the fact that that time that prices today or at least prices before three or four months ago. When prices started to stabilize so we're excited about our new communities. We're excited to get them open and operating even in the face of near 6% mortgage rates rather than 3% when they were underwritten but.
We still believe they're exceptionally well located and will sell and I also want to underscore to I don't want to sugarcoat.
We liked it better when the demand was more robust, but demand isn't dead and we're seeing a sales pace today, but I think it's much more reminiscent of the sales pace as we saw in 2017, 18, and 19 that two and a half to three to three and a half per month, rather than four or five and six times per month.
And so I think that things are maybe a resetting of the more normalized way right now, but only time will tell.
Thanks, again for taking my questions and congrats on the results.
Thank you. Thank you.
Thank you.
We now have remote Christian frontline from same mccanless with Wedbush. Your line is open again.
Hey, good afternoon, guys. Thanks for taking my questions.
So that was actually going to be my first question was on July .
We've heard from some of your competitors that with rates coming down almost 75 basis points, depending on what you look at the activity levels interest levels have started to pick back up so maybe if you could give some high level commentary on July two.
Two five to three and a half on absorption is that pretty much all.
All your markets across the country or there are some that maybe a little weaker or stronger than others.
Well there are markets that are a little stronger and a little weaker and sometime it's hard to know whether that's your operation or the macro market.
It's always a question that.
I think builders want to answer.
With strength of conviction that may not really know for sure. If it were really Frank with ourselves.
Having said that I think Austin, which was a red hot market for most of the last five years appears to be resetting slightly more than some others may be tampa under a little bit more pressure too.
I'm seeing really good strength still in Dallas, which remains the largest housing market in the country.
You know as Phil talked about in his comments.
The quarter got worse as we went on.
Sales were down a little bit.
In April a little bit more in May and then quite a bit more in June .
And we don't give any forward guidance.
Thanks.
Pointed out by several of you in the past.
And I say that with a smile on my face I don't mean to be snarky.
But let me just say this.
July is looking.
More like June than April and May and.
And but I think things are.
And the last two years or at least beginning with May of 2020.
Just after Covid first hit and demand just skyrocketed from May of 2020, all through the rest of 2020 and through all of 2021.
<unk> spring selling season, and there was virtually no seasonality and homes like almost every other builder was limiting sales in almost every one of our communities whether it was May March December July I think that historically the summer months, particularly July has been a month, where things are seasonally been slower.
Sure I think some of that seasonality is returning.
If that's the case it seems like it is.
I think that there is a little bit of.
Maybe getting use I don't want to create the wrong impression, but I think buyers are starting to get used to.
Fact that rates are probably at least for now settling in and this maybe you know five and three 8% to 6% range and you know, we'll see how that happens and you know there has been a little bit of incentive incentive incentive position.
By some of our competitors and we got a little bit too with buying rates down.
We'll see.
I think that if.
If I had to if I had to say I think July is feeling a little bit more like June than April and May maybe it turns better we'll see.
We're going to know a lot more here soon as part.
And Jay This is Phil one thing I'll also add and I'm sure. You know this I mean really the highest priority for us is to get our large very profitable backlog closed.
And.
It's one thing to do incentive when you're starting up a community or when you're closing out.
But when you have a large backlog at a strong price again, you have to be careful before you do a lot of incentives in there because obviously customers in the backlog will come back at you fairly quickly.
The good news is we're not having to do much at all sometimes may be an interest rate buy down a little bit sometimes maybe a few closing cost being covered but we're not having to do a whole lot. Thus far to get this backlog closed and that's kind of job one.
As Bob said, we're also really excited as we open these record number of stores in the second half.
For the year.
I mean, there it's easier to market price whatever that is depending on competition and whats going on in that sub market.
But it's a lot easier to do that as we open. These new we think well located good product stores. So again every subdivision is a little different but you know again job one is to get to this backlog through the pipe.
Thank you for that and that's actually I was going to go to the next bill will be.
Think about the deals that you're really looking at before you can go to closing.
Is it are you having to be more drastic in terms of.
Lower assumptions on pace or lower assumptions on price and just kind of maybe maybe which way you all are having to lean right now just given what youre seeing on the ground when it comes to <unk>.
<unk>.
Yeah lower pace.
Margin.
Higher development costs, if we're developing bigger contingencies.
Longer development times, and no and not much improvement in cycle time.
So you know.
Not exactly a royal flush of options I mean, you were sort of looking at things the way they are today as opposed to where they were.
One of the really good things Jay is where we are and everybody tends to talk about percentage options than it is in Florida, but as we all know the biggest risk is what you own today.
We own 25000 lots.
Again, that's within a couple of Years' supply. So it's not like we have in excess of land right now to deal with and as Bob said, you know a whole lot of that was.
Purchased you know back when prices were a lot better and so forth. So we we are focused on making sure we only bring stuff on the books that we really need to that we can get through.
Hey, you know we are developing you know some smaller phases than we were six months ago.
<unk> sales pace is slowing down so there's a lot of different things you can do to kind of manage that investment vast mutton that risk and those are the things we're paying attention to.
So.
On that I was encouraged to hear that your cycle times flat with I think you said <unk> versus <unk>.
And then on those <unk> don't have a crystal ball, but if you look at what <unk> been dealing with the supply chain and especially it sounds like that last 60 days.
Including having to deal with municipalities in the last 60 days I mean, do you feel like the supply chain issues that youre seeing right now probably.
Flat or maybe get a little bit better in the last half of them start moving through that backlog a little bit faster.
I think theres two pieces to that.
When it come down somewhere because no one really knows for sure I think that we're going to start to see just like I.
I think it's going to be significant but maybe it will pick up a week maybe.
On the homebuilding side.
Home construction side, I think that cycle times will not get worse and I think they may start to get a little bit better.
This slowed it you know.
There's less demand for everything because we're not the only builder.
You know downs.
The whole industry is and.
Now.
On the land development side.
The entitlement side.
I am a bit more concerned about cycle times, there, which which then cut back to when you can open new communities, whether we're buying finished lots from a third party developer or doing it ourselves, we're all living with sort of the same.
You know our processes.
We may be able to give you a little.
Quicker, depending upon who does it but by and large I don't I'm not so sure about that cycle time, I have less confidence in that one.
One is impacted by more external factors with labor shortages.
Bans on some of these big dirt contractors, given the big increase in state and federal infrastructure, that's going to divert labor and.
<unk>.
Equipment away from residential construction will have to see how that plays out I'm not being negative or doom and gloom about it I just think there could be continued pressure, there which doesn't allow it to get better.
Thank you have a little worse.
Not sure agreement Bob's comments on that and as I said earlier, we have.
Over a thousand homes more in the field at June 30, a year ago.
And.
During the first four months this year, we pretty much started everything we could.
Because we had to get it in the field to close this year.
It actually end up starting less houses in the second quarter than a year ago.
In reaction primarily to the slowdown in business.
So we do have a lot more houses in the field every market is a little different.
And you.
We have almost double the amount of specs that we feel great about that.
Only 100 or whatever are finished.
As we open these new stores.
Putting some specs and knows our smart series, which Bob talked about being half of our business, which as you know a stronger pace and stronger margin. We tend to have a few more specs in our smart series. We're also doing a few more attached townhome communities. When we were a year ago and again those tend to generate a fee.
More specs so we do have more houses out there.
We will carefully manage that level based on what our sales and closing pace is but.
I agree with Bob I'm, not sure we will get much more improvement as far as cycle time, but we have been making some progress.
Alright.
And then on incentives I guess, we're incidents this past quarter versus last year.
Or is everyone still just doing rate buy downs or are you starting to see some actual dollar incentives start to move in there small price cut things like that.
From you guys.
Yeah, you're here.
Now and then.
About a builder here or there.
Offering a big commission to realtors to bring traffic to their models that by and large.
As has been the kind of cutting and running thank goodness.
A widespread basis.
It's all back end.
In the days, leading up to the great recession.
One of the reasons for it is not just because of the discipline, but.
I think most of the large builders and certainly you saw that.
I have zero callable debt.
Not overly long on land, we're not desperate or not frightened.
A very strong balance sheets ours has never been as strong as it is today.
Certainly stronger than it was back then.
But on the other hand.
Most of what we've seen and we've done a little bit of that too.
Bart case.
Primarily directed as Phil said job one is to get the backlog close.
Primarily direct diseases, where it needed to get people to the closing table, if we have to give up.
A point or two or whatever it may be a little more.
Bringing the rate down so that they can get the house closed we think thats money well spent.
We're not too.
The contractual reasons not obligated to and we just think it's good business.
Hum.
Phil I don't know if you want to add anything.
Estimates of exact percentage.
Notify that.
And anywhere from two to three 4%.
Hi.
That's probably not that far off.
I wouldn't say, it's that widespread them with us.
It could change, but so far we haven't felt the need to just go Slam mountains.
For a bunch of financial financing across the board.
So we're trying to let the several world is trying to understand.
For clarity exactly what's going on.
Each week in the field.
And then last one.
If this is just more of a seasonal slowdown than anything else.
Expect post labor day kind of that small bump in traffic that we used to see in a normal year for.
Especially in the <unk>.
Southern areas of the country.
Book.
We hope so.
Yeah.
Yeah.
I don't know I mean, we'll know we'll know when we know right.
Historically, yes that was a better period seasonally definitely returning to more seasonality, we should see that we have a lot of people in our organization and our organization is strongly believe that we will see that what I do know is.
A we're opening up a lot of new communities.
We have a lot of excitement in terms of you know list and so forth of people that adhere to four expressed interest in buying these new communities.
As these come online and we opened them, we'll see if that enthusiasm converts to contracts but.
No and I do think that.
Shock of rates almost doubling in less than 100 days I think that's beginning to say you know we're down a little bit.
And.
And there's still even though inventory levels are higher now than they were at the end of the first quarter and every single one of our markets.
Still nowhere near where they should be by historical standards, So theres still a real shortage of homes and.
I guess I'm more optimistic than not that we'll see an uptick here in the fall and we'll just see how it has how it plays out.
We were prepared to deal with it regardless I mean, we've been doing a lot of things obviously as far as.
Our sales team refreshing them on getting back to basics shopping blind shopping our sales teams.
Sure on a subdivision by subdivision basis that we understand what our competition is and what's being offered.
So making sure when we opened these communities we have the right product et cetera says J, we've been doing a lot of things, especially the last couple of months.
Digital marketing.
Yeah.
Beads, how we handle the leads and so forth. So a lot of effort here for sure.
But hopefully hopefully we're going to see an uptick.
It sounds great. Thanks, guys I appreciate you taking all the questions.
Thanks, Jay Thanks, Jay.
Thank you. So we now have a winston.
Advisors you May proceed with your question.
Thank you. Thank you and thank you for a great another great quarter guys.
Thanks.
In terms of.
<unk> spending of $125 million of land this quarter.
I was curious if you think given the.
Reising scenario that you've laid out in the incentives and the fact that prices actually may decline, a little bit or not grow. If you think you can make.
Obviously I don't think we can make the same returns, but can you make reasonable returns on the land that you bought in the last 12 months were $500 million, where do you think.
Yes.
Good.
Yeah, we believe that.
<unk>.
And we also believe that while things may be choppy for a while you know.
We don't see.
Any kind of serious deflation with with sand prices, we don't see that happening we don't see that anywhere on the horizon, we don't see the risk of millions and millions of homes going into foreclosure like last time or like 2789.
Quality.
Of buyers that have entered homeownership.
And the last three or four years.
<unk> standpoint is probably the best in the history of the country.
Okay.
We've shared on the last several calls.
So our case, our average buyers, putting almost $80000 down it's been that way for for almost two years credit score $740 to 750, I'm hearing the same kind of relative.
Ah metrics from the other large builders.
The typical conventional mortgage within the homebuilding industry in the last three or four years is probably the safest it's ever been.
So you don't have a lot of people that are gonna get bumped into foreclosure in all likelihood, which helped cause the last avalanche, but.
I think yeah, I think we're in good shape with our land.
It may not.
Not produce it may not produced 17% to 18% pretax income, but you know historically anything between eight and 12 was considered outstanding.
With route with reasonable inventory turns you could said really strong returns on equity and that's what we've always tried to do.
In terms of the new communities I assume it's slightly more risky are you underwriting towards a low returns.
No worry with understanding what you're doing but my purpose.
Into new communities.
Yeah, well you should look at what the current run rates are as far as absorption pace. A S. P margins of course has been a little bit of a moving target. The FERC last couple of months.
Yeah, we have slowed down their purchases, we actually bought less the first half than we had in our internal budgets.
We continue to what new land, we're buying to underwrite it to what's going on now you know more of the spend has been in the last few quarters toward land development.
But again, we're developing some smaller phases. So theres a lot of different ways. We're going at you know trying to control the land risk.
And what's the biggest thing being that you know we own 25000 lots, which we feel good about.
Trying to stay in that two to three year supply based on current run rates. So overall, we feel really good about the land book.
Okay excellent and given that.
More than likely not going to spend as much.
Thank you for buying back $25 million worth of stock in the quarter just ended which is good I was curious.
That the.
The book there in the inventory as you say it is excellent on your book, if you'd be willing to take some of the money that you don't spend on land that you have been spending and put it into more stock purchases a little bit more aggressively.
Would you be willing to do that.
Well, we have been we haven't been more aggressive if you look at what we've done if you go back to the third quarter last year through where we are now we bought back about 6% of the shares.
So we have been getting more aggressive and that's something we will continue to look at that's obviously driven by a lot of different factors, but some.
We continue to look.
Is it possible that.
The amount of debt now wouldn't go up we're actually could come down as you don't buy as much.
Land.
You build out the backlog who actually your your.
Cash goes up what were your debt goes down into the future is that our strong profitability.
Well, our our callable debt.
Unsecured revolver right.
Zero.
Because of the cash we have to go up in it.
If you ask me about to go up.
I'll, let I'll, let Phil answer that that's driven by a lot of things, it's obviously impacted by.
And out of our houses we close it acted by the.
The amount of specs, we Vale land, we buy land, we develop it's impacted by a lot of things you know we as Bob said, we don't have any short term homebuilding debt out there and the senior notes are out there for a few more years.
Good terms low rates. So we feel good about that but again you know we have been I think pretty aggressive buying stock back.
We want to continue especially in these challenging times.
And you're going to have low leverage.
So.
We'll continue looking at stock buyback just like we had the last couple of quarters.
Okay.
Chances are that the cash is probably not going to go there I just wanted to say that the shareholders have much confidence in you and be able to navigate through these more difficult.
So keep it up.
Thanks.
I appreciate it.
Thank you.
Your next question comes from Kevin.
Kevin of housing Research Center your line is open.
Yes, thanks, guys.
So I'm pretty sure we gave the number.
Probably not.
Can you give us what how many homes you guys started during the quarter.
How does that compare to a year ago, and generally speaking what youre thoughts on starting.
Back when stuff going forward.
Yeah, Alex what we did is we started 27 2700 homes in the second quarter, which was slightly below last year's second quarter, and we started 5100 homes during the first half.
And at June 30, if we have 6300 homes in the field versus 5100 homes in the field at 630 in last year, which is up 24%.
You know as I said.
Four.
This year, we pretty much had to get things in the field by April to get the houses closed.
We were pretty much start and everything we could.
We did start last in the second quarter than last year.
And lower than you know the budget internal numbers were we think were in great shape.
Cycle times have kind of flattened out in the second quarter compared to the first quarter.
We do have more specs don't have a lot more completed specs, but by plan, we have more stacks because we're opening a lot more new stores more smart series B more attached town houses. So we feel great where we are but that's something that we will manage very closely.
Stan.
Sales getting the big profitable backlog close we'll manage it very closely just like we always do.
Okay, but I guess as you approach if things stay near the slower levels or are the starts likely to come in similar to that pace or not necessarily.
That's hard to project Atlas it it just depends on.
So sad.
Backlog is closing very well, we're having to do a few things here and there to get people close because they may have bought when rates were about three now and then we're having to buy down the rate or maybe cover some closing cost, but by and large I mean job. One is to get this very profitable backlog closed and depending on how that <unk>.
Backlog close depending on what our sales pace is.
We will gain more factor all that and as far as deciding what to put in the field.
Got it.
Okay, well, thanks, and good luck guys.
Thanks, Alex.
Thank you.
We have the final question on the line at this time.
From Adam Star of Covid side asset management. Please go ahead can you like Adam.
Hi.
Spectacular result, I just had another follow up question on land and also capital allocation of land prices coming down or are you seeing less competition.
It's striking new land deals given the change in interest rates and traffic throughout everyone's community.
Yeah.
This is Bob Schottenstein.
Question.
I think that the.
Clearly, they're not going.
Up in most submarkets.
There may be an exception to that here or there.
And every market and sub market is a little bit different that has it been in general.
The rush for locations and the competition to get deals tied up quickly and rapidly on seller's terms.
You know as opposed to more even handed terms that has begun to.
Change.
And.
I don't know that I can.
<unk> with any certainty situations where prices have actually.
Come down to the point, where it's a trend there may be an isolated case here or there were something gets renegotiated.
But.
Thus far.
The short answer to your question is leveling off.
I think that most of the builders certainly this is the case with US we have a tremendous land position.
I have to buy anything for a while trying.
Going to be patient.
It's going to be very.
Selective about what we do choose to take on this new.
Be very market market, driven and market.
Markets.
Meet the market strategy.
But you know, we'll just have to see.
Im not sure that we will see prices drop.
The leveling off would be really good I think it's needed frankly.
On the one hand, we're thrilled with our average sale price.
I'm thrilled with the revenue would create so we're thrilled with the margins that you produce but I don't think it's sustainable and it's further exacerbating the affordability problem.
So it's always tough to thread the needle on these things.
Yes, Thanks, a lot for your insightful answer.
When I look at it.
Sales are slowing or find snowy and you've got over a three year supply right.
Great year supply become three and a half for four years at a lower rate of sale.
And.
And just looking at the trade off between land purchases and stock repurchases.
Land prices arent going anywhere I think it's pretty much a lock.
Thank you.
Baird.
So way below book value and book value going up the trade off between land and buying back stock is more attractive than it's been and it's been attractive in the past, but it seems to have gotten a lot more attractive than.
It makes a lot of sense, because you're buying at a discount to an increasing book value, whereas the land youre buying at.
It market.
It doesn't seem to be changing very much.
Yes.
Now keep in mind I'll.
Keep in mind also that you know we own and control.
Roughly 48000 lives.
You made my argument even stronger.
Right right right right, yes, and that about half of them are controlled.
<unk> via option agreements.
Rich.
Laos us to play some offense with whether or not we choose to go forward renegotiate by terms, who knows what so I think theres a lot of levers here.
As you pointed out.
Yeah, well, you're in a great position as long as affordability doesn't get any worse.
Well I think that's true of the whole market.
Okay, well once again, thanks for your performance and I really appreciate your taking my questions.
Oh, Thank you I appreciate it.
Bye bye.
Thank you have a question from the line of Greg behind it back for some closing remarks.
Thank you for joining us look forward to talking to you next quarter.
Thank you for joining that does conclude today's call. Thank.
Thank you Dan you May now disconnect your line.
Yeah.
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