Q3 2023 M/I Homes Inc Earnings Call

Robert Schottenstein: to review M.I Homes' third quarter results. We had an outstanding quarter, one of the best in company history, highlighted by record revenue, record income, a 50% increase in new contracts, and very strong margins and returns. In addition, we ended the quarter with record shareholders' equity and a balance sheet that's as strong as at any time in our 47-year history.

Third quarter results.

We had an outstanding quarter, one of the best in company history.

Highlights by record revenue record income, a 50% increase in new contracts and very strong margins and returns.

In addition, we ended the quarter with record shareholders' equity and a balance sheet, that's as strong as at any time in our 47 year history.

Robert Schottenstein: Our third quarter results build upon the very strong results we previously reported in the first and second quarters of this year. We're particularly pleased to report these results, notwithstanding an unprecedented rapid rise in interest rates, continued concerns from all kinds of macroeconomic factors, as well as heightened conflict in the Middle East and across the globe. We increased our revenues during the quarter by 3% to a record $1 billion. Deliveries during the quarter also increased by 3%, free tax income improved by 7% to a record $178 million.

Our third quarter results built upon the very strong results. We previously reported in the first and second quarters of this year.

We are particularly pleased to report these results notwithstanding an unprecedented rapid rise in interest rates continued concerns from all kinds of macro economic factors as.

As well as heightened conflict in the middle east and across the globe.

We increased our revenues during the quarter by 3% to a record $1 billion.

Deliveries during the quarter also increased by 3%.

Pre tax income improved by 7% to a record $178 million.

Robert Schottenstein: Gross margins for the quarter improved to 27%, that's 10 basis points better the last year and 140 basis points better than our second quarter. We also benefited from the continued improvement in our construction cycle time, 50 days better than a year ago, and we are focused on further improving that in future quarters. Free tax income equal 17% of revenue and our return on equity equal 23%. It's previously noted new contracts improved by 50% from a year ago, reflecting the strength of our product offerings, our intense focus and success in designing more affordable product, quality of our communities, and our ability to selectively use below market financing incentives to drive both traffic and sales.

Gross margins for the quarter improved to 27%, that's 10 basis points better than last year, and 140 basis points better than our second quarter.

We also benefited from the continued improvement in our construction cycle time.

Ft days better than a year ago, and we are focused on further improving that in future quarters.

Pre tax income equaled, 17% of revenue and a return on equity equaled 23%.

As previously noted new contracts improved by 50% from a year ago, reflecting the strength of our product offerings.

Our intense focus and success in designing more affordable product.

<unk> of our communities and our ability to selectively use below market financing incentives to drive both traffic and sales.

Robert Schottenstein: Over 50% of our buyers are first time buyers and our smart series, which is our most affordable line of homes, continues to be a leading contributor to our strong sales performance. Our smart series is particularly attractive to the millennial buyer and our smart series sales comprise roughly 55% of total company sales. During the past several weeks we have seen additional increases in mortgage rates with a 30-year rate now hovering at around 8%.

Over 50% of our buyers are first time buyers and our smart series, which is our most affordable line of homes continues to be a leading contributor to our strong sales performance.

Our smart series is particularly attractive to the millennial buyer and our smart series sales comprised roughly 55% of total company sales.

During the past several weeks, we have seen additional increases in mortgage rates with a 30 year rate now hovering at around 8%.

Robert Schottenstein: This recent rise has somewhat impacted demand. Clearly, we are seeing a bit more consistency from market to market and a slight slowdown in activity. As we have in the past, we will respond accordingly by focusing on below market mortgage rates to incentives where we believe it to be necessary. We ended the quarter with record shareholders equity of $2.4 billion, 25% better than a year ago. In addition, we have zero borrowings under our $650 million line of credit and a quarter ending cash balance of $736 million. And our debt to capital ratio of 22% positions us with one of the lowest leverage levels in our industry.

This recent rise has somewhat impacted demand.

Clearly, we are seeing a bit more consistency from market to market and a slight slowdown in activity.

We have in the past, we will respond accordingly by focusing on below market mortgage rates to incent sales, where we believe it to be necessary.

We ended the quarter with record shareholders' equity of $2 $4 billion, 25% better than a year ago.

In addition, we have zero borrowings under our $650 million line of credit and a quarter ending cash balance of $736 million.

And our debt to capital ratio of 22% position.

Positions us with one of the lowest leverage levels in our industry.

Robert Schottenstein: As noted earlier, our balance sheet is as strong as it's ever been.

As noted earlier, our balance sheet is as strong as it's ever been.

Robert Schottenstein: Now I will provide a few additional comments on our various markets. Our division income contributions in the third quarter were led by Dallas, Orlando, Tampa, Raleigh, Austin, and Columbus. New contracts for the third quarter in the northern region increased by 90 percent, while new contracts in our southern region increased by 29 percent. Deliveries in the southern region increased 15 percent from last year, while deliveries in our northern region decreased by 13 percent.

Now I will provide a few additional comments on our various markets.

Our division income contributions in the third quarter were led by Dallas, Orlando, Tampa, Raleigh, Austin and Columbus.

New contracts for the third quarter in the northern region increased by 90%, while new contracts in our southern region increased by 29%.

Deliveries in the southern region increased 15% from last year, while deliveries in our northern region decreased by 13%.

Robert Schottenstein: 65 percent of all deliveries come out of our southern region, the balance of 35 percent, the northern region. Our owned and controlled lot position in the southern region decreased by 4 percent compared to a year ago, and in the northern region increased by 1 percent compared to a year ago. 35 percent of our owned and controlled lots are in our northern region, while 65 percent of our owned and controlled lots are in our southern region. We have an excellent land position, company-wide we own approximately 23,000 lots which is roughly a three-year supply.

65% of all deliveries come out of our southern region, the balance of 35% the northern region.

Our owned and controlled lot position in the southern region decreased by 4% compared to a year ago and in the northern region increased by 1% compared to a year ago.

35% of our owned and controlled lots are in our northern region, while 65% of our owned and controlled lots are in our southern region.

We have an excellent land position companywide, we own approximately 23000 lots, which is roughly a three year supply.

Robert Schottenstein: As I conclude, let me just state again that we are in the best financial condition in our history. We remain on track and are very excited to open a number of new communities yet this year, thus increasing our community count by approximately 15 percent from last year. We feel very good about our business and are well positioned to have another year of strong results in 2023.

So I conclude let me just state again that we are in the best financial condition in our history.

Remain on track and are very excited to open a number of new communities yet this year, thus, increasing our community count by approximately 15% from last year.

We feel very good about our business and are well positioned to have another year of strong results in 2023 with that I'll turn it over to Phil Thanks, Bob Our new contracts were up 62% in July up 14% in August and up 85% in September and our cancellation rate for the third quarter.

Phillip Creek: With that, I'll turn it over to Phil. Thanks, Bob. Our new contracts were up 62 percent in July, up 14 percent in August, and up 85 percent in September, and our cancellation rate for the third quarter was 10 percent. 55 percent of our third quarter sales were at first-time buyers, and 52 percent were inventory homes. Our community count was 204 at the end of the third quarter compared to 178 a year ago.

There was 10% 50.

55% of our third quarter sales were first time buyers and 52% where inventory homes.

Our community Count was 204 at the end of the third quarter compared to $1 78, a year ago. The breakdown by region is 101 in the northern region and 103 in the southern region during.

Phillip Creek: The breakdown by region is 101 in the northern region and 103 in the southern region. During the quarter, we opened 22 new communities while closing 13. Currently, estimate ending 2023 with about 225 communities, a 15 percent increase from year in 2022. We delivered 2,096 homes in the third quarter, delivering 60 percent of our backlog. And as of September 30, we had 4,600 homes in the field versus 5,800 homes in the field a year ago.

During the quarter, we opened 22, new communities, while closing 13.

Currently we estimate ending 2023 with about 225 communities, a 15% increase from year end 2022.

Delivered 2096 homes in the third quarter, delivering 60% of our backlog and as of September 30th We had 4600 homes in the field versus 5800 homes in the field a year ago.

Phillip Creek: Our average closing price for the quarter was 481,000, a 1 percent decrease when compared to last year's record third quarter average closing price of 487,000. Back to log average sale price is 510,000, down from 533,000 a year ago. Our third quarter gross margin was 26.9 percent, up 10 basis points year over year, and up 140 basis points from our second quarter. Our construction costs were flat in the third quarter, and we benefited from improved building cycle times.

Our average closing price for the quarter was 481000% to 1% decrease when compared to last year's record third quarter average closing price of 487000.

Backlog average sale price is 510000 down from 533000 a year ago.

Our third quarter gross margin was 26, 9% up 10 basis points year over year, and up 140 basis points from our second quarter.

Our construction costs were flat in the third quarter and we benefited from improved building cycle times.

Phillip Creek: Our third quarter SGNA expenses were 10.5 revenue compared to 10.3 a year ago. Our third quarter expenses increased 5% versus a year ago due primarily to higher third-party broker costs and expenses related to our higher community count. Interest income, meta-interest expense for the quarter was 5.8 million. Our interest incurred was 9.4 million. We are pleased with our returns for the quarter. Our pre-tax income was 17% and our return on equity was 23%.

Our third quarter SG&A expenses were 10 fiber revenue compared to $10 three a year ago, our third quarter expenses increased 5% versus a year ago due primarily to higher third party broker costs and expenses related to our higher community count inter.

Interest income net of interest expense for the quarter was $5 8 million our interest incurred was $9 4 million.

We are pleased with our returns for the quarter, our pretax income was 17% and our return on equity was 23%.

Phillip Creek: During the quarter we generated 185 million of EBITDAG compared to 179 million in last year's third quarter. Our effective tax rate was 22% for the third quarter compared to 21% in last year's third quarter. Our earnings per diluted share for the quarter increased to a record $4.82 per share from $4.67 per share last year up 3%.

During the quarter, we generated $185 million of EBITDA compared to $179 million in last year's third quarter.

Our effective tax rate was 22% for the third quarter compared to 21% in last year's third quarter.

Our earnings per diluted share for the quarter increased to a record $4 82 per share from $4 67 per share last year up 3%.

Phillip Creek: Our book value per share is now $87, a $16 per share increase from a year ago.

And our book value per share is now $87, a $16 per share increase from a year ago.

Derek Klutch: Now Derek will address our mortgage company results. Thanks Phil. Our mortgage and title operations achieved pre-tax income of $9.9 million. A 25% increase from $7.9 million in 2022's third quarter. Revenue increased 17% from last year to $23.6 million due to higher margins on loan sold, a higher average loan amount, and an increase in loans originated. The average loan to value on our first mortgages for the third quarter was 82%, which is the same as last year.

Now Derek <unk> will address our mortgage company results.

Thanks, Phil.

Our mortgage and title operations achieved pretax income of $9 9, Million% to 25% increase from $7 9 million in 2020 twos third quarter.

Revenue increased 17% from last year to $23 $6 million.

Due to higher margins on loans sold a higher average loan amount and an increase in loans originated.

Average loan to value on our first mortgages for the third quarter was 82%, which is the same as last year.

72% of the loans closed in the quarter were conventional and 28% FHA or VA compared to 79% and 21% respectively for 2020 twos third quarter.

Derek Klutch: 72% of the loans closed in the quarter were conventional and 28% FHA or VA, compared to 79% and 21% respectively for 2022's third quarter. Our average mortgage amount increased to $394,000 in 2023's third quarter compared to $385,000 last year. Lones originated increased to 1,469 loans, which was up 16% from last year, while the volume of loans sold increased by 13%. Our borrower profile remained solid, with an average down payment of almost 18% and an average credit score of $748, compared to $745 in 2022's third quarter. Finally, our mortgage operation captured 86% of our business in the third quarter, which was up from 76% last year.

Our average mortgage amount increased to $394000 in 2020, Three's third quarter compared to $385000 last year.

Loans originated increased to 1469 loans.

Which was up 16% from last year, while the volume of loans sold increased by 13%.

Our borrower profile remains solid with an average down payment of almost 18% and an average credit score of 748 compared to $7 45 in 2022 third quarter.

Finally, our mortgage operation captured 86% of our business in the third quarter.

Which was up from 76% last year.

Derek Klutch: Now I'll turn the call back over to Phil. Thanks Derek. For the balance sheet, we ended the third quarter with a cash balance of $736,000,000, and no borrowings under our unsecured revolving credit facility. We have one of the lowest debt levels of the public home builders and our well-positioned with our maturities. Our bank lined matuers in late 2026, and our public debt matuers in 2028 and 2030, and that's interest rate below 5%.

Now I'll turn the call back over to Phil Thanks, Derek.

The balance sheet, we ended the third quarter with a cash balance of $736 million and no borrowings under our unsecured revolving credit facility. We have one of the lowest debt levels of the public homebuilders and are well positioned with our maturities our bank line matures in late 2026, and our public debt matures in 2000.

28, and 2030 and as interest rates below 5% or.

Derek Klutch: Our unsold land investment at 930-23 is 1.3 billion, compared to 1.2 billion a year ago, and at 930, we spent $718 million of raw land and land debt or development, and $608 million have finished In the third quarter, we spend $106 million on land purchases and $151 million on land development for a total of $257 million and you're to date our land span total $600 million. We spend $914 in the Northern region and $1,107 is in the Southern region and in 932 we had 200 completed inventory homes and $1,855 total inventory homes.

Our unsold land investment at $930 23, as $1 3 billion compared to $1 $2 billion, a year ago and at 930, we had $718 million of raw land and land under development and $608 million of finished unsold lots.

In the third quarter, we spent $106 million on land purchases and $151 million on land development for a total of $257 million and year to date, our land spend totaled $600 million.

930, we owned 23000 lots and controlled 45000 lots.

At the end of the quarter, we had 414 completed inventory homes and 2021 total inventory homes and of the total inventory of 914 or in the northern region.

In 1107 is in the southern region and at $930 22, We had 200 completed inventory homes and 1855 total inventory homes.

Derek Klutch: We spend $25 million in the third quarter, repurchasing our stock and a $53 million remaining under our current board authorization.

$25 million in the third quarter repurchasing, our stock and a $53 million remaining under our current board authorization.

Operator: This completes our presentation, we'll now open the call for any questions or comments. Thank you, ladies and gentlemen, we will now begin the question and answer session. If you'd have a question, please press star followed by one on your touch tone phone. You will have a retone prompt acknowledging your request and your questions we've told in the order they received. If you wish to decline from the following process, you can press star followed by two. And if you're using a speaker phone, please lift the hand set before pressing any keys.

This completes our presentation will now open the call for any questions or comments.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your touch time to time, you will have a free time prompts acknowledging your request on your question. So we pulled in the order they are received.

If you wish to decline from the polling process you can press star followed by two.

And if you're using a speaker phone please lift the handset before.

Any keys.

Jesse Lederman: Our first question comes from the line of just you lead them in at film and associates. Please go ahead. Hi, congrats on the strong quarter and thanks for taking my question. Thanks, Jesse. Can you just walk us through the sequential improvement to gross margin? I remember last quarter you noted that your backlog gross margin was relatively flat compared to what you were delivering and you noted your construction cost for about flat.

Our first question comes from the line of Jim.

C Lederman Selman and associates. Please go ahead.

Hi, Congrats on the strong quarter and thanks for taking my question.

Thanks Jesse.

Can you just walk us through the sequential improvement to gross margin I remember last quarter. You noted that your backlog gross margin was relatively flat compared to what you were delivering and you noted your construction costs were about flat. So can you just walk us through.

Jesse Lederman: So can you just walk us through, you know, what drove the. This is constantly. I think it's I think it's a number of things. Clearly, we've had some benefit from, you know, the flattening of hard costs, the items that you mentioned, but I think it's it's as much as anything. The continued increase in the mix of more affordable product, which you know, we call our smart series, which typically carries higher margins than the other, the more move up product that we sell.

What drove that.

This sequential increase I think it's I think it's a number of things.

Clearly we've had.

Some benefit from the flattening of.

Hard costs.

The items that you mentioned, but I think it's.

As much as anything the.

Continued.

Our increase in the mix of more affordable product, which we call our smart series, which typically carries higher margins than then.

Other.

The more move up product that we sell.

Jesse Lederman: We have really focused that began several years ago. I'm glad we did. Sometimes you focus on things that don't work out as well as others. But several years ago, we really began to focus on designing even more affordable product that we could sell under our smart series umbrella. Some of it's attached, the number of attached communities that we currently have in the market right now was roughly 50% more than it was a year ago.

We have really focused that began several years ago.

I'm glad we did sometimes you focus on things that don't work out as well as others, but several years ago, we really begin to focus on designing even more affordable product that we could sell under our smart series umbrella some of it is attached.

The number of attached communities that we currently have in the market right now is roughly 50% more than it was a year ago year ago, We had about 20 communities across our various market selling attached product today, it's close to 30.

Jesse Lederman: A year ago, we had about 20 communities across our various market selling attached product today. It's close to 30. In addition, more narrow single family. This product offering has been very successful for us. And it's selling not only at good pace, but at better margins, lower cycle time. You put all this into the mix and one other factor. We've opened up a number of new communities this year. Our new communities are quite candidly performing even better than we anticipated.

In addition, more narrow single family.

This this product offering has been very successful for us.

It is and is selling not only at good pace, but at better margins lower cycle time.

When you put all this into the mix.

The one other factor we've opened up a number of new communities. This year.

Our new communities.

Quite candidly performing even better than we had not all but many even better than we anticipated.

So.

It's not one thing it's many things.

We at the beginning of the year did not believe our margins would be as strong as they are.

Mainly because at the beginning of the year business conditions were much more challenging in terms of demand and they have been thus far this year, but we're very pleased with our margins.

Jesse Lederman: Mainly because at the beginning of the year, business conditions were much more challenging in terms of demand than they have been thus far this year. But we're very pleased with our margins. It's possible there could be a little bit more pressure on them going forward for the reasons that I mentioned with doing more, doing scent below market financing. But look, we're going to do what we need to. We're really proud of our results.

It's possible there could be a little there could be a little bit more pressure on them going forward.

For the reasons that I mentioned with.

Doing more to incent below market financing, but.

Look we're going to do what we need to we're really proud of our results.

Jesse Lederman: We want to continue to maintain our momentum. We think the underlying demographics on our industry as you pointed out, as much as anyone has, frankly, are very strong with household formations, millennial home ownership rates increasing, incredibly low levels of inventory of existing homes. We know things are by no means perfect. We know they're still inflation. We know rates are in an unsteady state. But we're bullish on the home building industry and we're bullish on MI Homes.

We want to continue to maintain our momentum we think the underlying demographics in our industry as you pointed out as such.

Such as anyone has frankly, a very strong.

With household formations millennial homeownership rates, increasing incredibly low levels of inventory of use of existing homes.

We know things are by no means perfect. We know there is still inflation, we know rates are in an unsteady state.

But.

We're bullish on the homebuilding industry and we're bullish on homes and Jesse just the specifics for you as Bob mentioned, we have opened 56, new stores. This year and we've been very pleased with the way they performed.

Jesse Lederman: And Jesse, just a specific for you as Bob mentioned, we have opened 56 new stores this year. And we've been very pleased with the way they performed. That's helpful. Thanks. Could you give maybe, you know, you noted that your orders are up 85% in September, which, you know, I look back to your comments from last year and you were down 35%. A year ago, so, you know, a lot of that's comp driven also, but maybe if you could talk about, you know, demand trends, you know, in September and maybe if you could comment on October as well, that'd be helpful.

That's helpful. Thanks.

Could you give maybe.

You noted that your orders were up 85% at September which.

I look back to your comments from last year, and you were down 35% a year ago. So a lot of that comp driven also but maybe if you could talk about demand trends.

In September and maybe if you could comment on October as well that'd be helpful. Along with maybe some some pricing action that you may need to take to keep sales strong with rates continuing to rise.

Jesse Lederman: Along with maybe some some pricing action that you may need to take to keep sales strong with rates continuing through us. Yeah. First of all, the last six months of last year was rough, as you recall. You know, I think throughout the better part of the last six months, well, throughout the last six months of last year, I think we average maybe 380 or 390 sales a month, which is not good.

Yes first of all that.

The last six months of last year.

As rough as you recall.

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Our.

Think throughout the better part of the last six months well throughout the last six months of last year I think we averaged maybe 380 or 390 sales a month, which is not good.

So going into this year.

Jesse Lederman: So going into this year, you know, it's simple. We were going to have some pretty low comps, if you will. Interestingly, you know, our sales since January and through September, you know, have averaged, you know, in the high six is low sevens 100 a month. It wasn't that September was such a blow away month. It just we had a particularly low comp from a year ago. Sales and throughout the quarter were pretty steady month to month to month, although September was probably a little better in some ways and aided by new community openings.

At some point, we're going to have some pretty low comps if you will.

Uh huh.

Interestingly, our sales since January and through September.

Average in the high sixes low Sevens 100, a month.

It wasn't that September was such a blow away month, it's just we had a particularly low comp from a year ago sales in throughout the quarter were pretty steady month to month to month, Although September was probably a little better in some ways.

By new community openings.

Jesse Lederman: I think it's slowed a little bit in October, as I mentioned. It's a little bit market to market. Some markets are, you know, the demand is a little stronger than others. But clearly there's inconsistencies, choppiness, whatever words you want to use. We've been essentially using below market mortgage rates to incentives for quite some time. You know, when the par rate was seven and a half, we knew we had to get it below that.

I think just slowed a little bit in October as I mentioned, it's a little bit market to market some markets are.

The demand is a little stronger than others, but clearly there is inconsistency choppiness whatever words, you want to use.

Well.

We've been we've been essentially using below market mortgage rates to incentive sales for quite some time.

When the par rate was seven and a half we knew we had to get it below that now that the par rates hovering around eight we know that to get sales. We've got to continue to Incent. We may have to do a little bit more we're going to continue to watch. We're also entering into a normally seasonally slow time.

Jesse Lederman: Now that the par rate's hovering around eight, we know that to get sales, we've got to continue to incentive. We may have to do a little bit more. We're going to continue to watch. We're also entering into a normally seasonally slow time. As we get here into November, we don't want to overreact. But we're going to do what's necessary. There could be a little bit of pressure on margins. I don't want to spook people, but that's just the reality.

As we get here into November.

We don't want to overreact, but we're going to do what's necessary.

Could be a little bit of pressure on margins I don't want to spook people.

But that's just the reality I think that our results have stood tall for the last year, plus and I suspect that they will continue to.

Jesse Lederman: I think that our results have stood tall for the last year plus. And I suspect that they will continue to for the next several quarters and beyond. Also, Jesse, we're trying to balance things. Am I talked about as far as houses in the field? You know, we have 4,600 homes in the field today versus 5,800 a year ago. So we do have fewer houses in the field. You know, we did slower our business down, especially the last couple of quarters of last year.

For the next several quarters and beyond.

You can also Jesse we're trying to balance things and Mike talked about as far as houses in the field.

We have 4600 homes in the field today versus 5800, a year ago.

So we do have fewer houses in the field, we did slow our business down, especially the last couple of quarters of last year. We do have 400 completed specs versus 200. So again, we're trying to be very mindful of all of those things.

Jesse Lederman: We do have 400 completed specs kind of versus 200. So again, you know, we're trying to be very mindful of all those things. You know, slashing prices and those type things is not the way we operate in general. We try to run a very conservative business and hard to get these subdivisions approved and land development houses built. So we're trying to balance all those things off. But you know, what are the subdivisions a little different?

Slashing prices and those type things is not the way we operate and in general we try to run a very conservative business and hard to get these subdivisions approved in land development and houses built so we're trying to balance all of those things off but.

Divisions, a little different with him, particularly inspired by.

Jesse Lederman: What I'm particularly inspired by is the number of communities that we have. In the last week, I've been out driving communities in Houston or Lando and Columbus. I spent quite a bit of time in the field in all three within the last week. And the number of communities that we have where we're still seeing very strong activity. It's not all of them, but there's certainly a healthy number of them that are still, you know, running at that 3, 4, 5 in some cases, 6 sales a month.

As the number of communities that we have in the last week I've.

I've been out driving communities in Houston, Orlando, and Columbus, I spent quite a bit of time in the field and all three.

The last week.

And the number of communities that we have where we're still seeing very strong activity. It's not all of them, but there is certainly a healthy number of them that are still.

Running at that 345 in some cases six sales a month.

Jesse Lederman: And the demand is there. Obviously, the demand slows as rates go up, but I still think that there's strong desire for home ownership across a number of sectors, particularly millennials and right behind them, the Gen Zers. Thanks for the commentary. That's really helpful. One last one for me just on the mortgage right by the end. You talked about maybe needing to do a little more. What exactly would that entail? Would that mean that if you were buying down rates from 7 to 6?

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Okay.

The demand is there.

Obviously, the demand slows as rates go up but I still think that.

There's a strong desire for home ownership across a number of sectors, particularly millennials and bright behind them the Gen Z or <unk>.

Thanks for the commentary.

Really helpful. One last one for me just on the mortgage rate buy down you talked about maybe needing to do a little more what exactly.

Would that entail would that mean, though if you are buying down rates from seven to six and then if rates go up.

Jesse Lederman: Well, that differs from market to market. There's some we may have to do more. Some of our markets as long as I'm out of one I don't want to get into too much of this because you know some of our competitors might be listening but in some of our markets if we can just be in that six and a half to six and three quarter by bought down rate we can see really good activity.

That's good.

That differs.

Yes.

That differs from market to market. There's some we may have to do more.

You know.

Some of our markets as long as I don't want to I don't want to get into too much of this because.

Some of our competitors might be listening, but.

And some of our markets. If we can just be in that six five to six and three quarter by bought down right.

We can see really good activity.

Jesse Lederman: Over half of our sales are specs but we don't have to provide long-term forward commitments you know most when over half your sales are specs you can deliver the house you know within 30 or 60 days and that helps as well. Some markets we have to get in the low six is it's very expensive to get into the high five's a lot of the fine print with that product exceptionally high you know credit scores north of seven 80 and so forth very few buyers can even can even do that it might draw traffic but then it might create frustration.

Over half of our sales are specs. So we don't have to provide long term forward commitments.

Most of that went over half your sales are specs you can deliver the house within 30, or 60 days and that helps as well some markets we have to get in the low sixes.

It's very expensive to get into the high fives, a lot of the fine print.

That product.

Exceptionally high credit scores north of 780, and so forth very few buyers could even can even do that it might draw traffic, but then it might create frustration.

Jesse Lederman: Now a little bit of the two one by down we're seeing you know that's I've I've never personally been a big fan of that because I've never been a big fan of adjustable rate mortgages but we're seeing we're seeing some some buyers take that it's. This is a subdivision business and within each within each market and so well there's certain certain communities where we're doing more even within the same market and that's how we're managing it right now it takes a lot of precision and a lot of focus and it's it's day to day week to week. Very helpful commentary thank you and good luck on the upcoming quarter. Thanks a lot Jesse. Thank you.

So little bit of the two one by down we're seeing.

That's.

I've never personally been a big fan of that because I've never been a big fan of adjustable rate mortgages, but we're seeing we're seeing some some buyers take that.

It's.

This is a subdivision business and within each within each market and so there are certain certain communities, where we're doing more even within the same market.

And that's how we're managing it right.

Right now it takes a lot of precision in a lot of focus.

It's day to day week to week.

Very helpful commentary, Thank you and good luck on the upcoming quarter.

Thanks, a lot Jesse.

Thank you. Our next question comes from the line of Brian.

Carl Reichardt: Now next question comes from the line of call record at BTIG. Please go ahead to your line is open. Thanks. Hey guys hope you're doing well. I'm kind of covered. Big picture. Talk to you. You too. Just a big picture of ones again from me so your own options split on your lots is like roughly 50 50 I'm curious. Just a if you're expecting that over the next couple of three years to change in any meaningful direction.

<unk>. Please go ahead your line is open.

Thanks, Hey, guys have been doing well.

Thanks, Joe good to talk to you.

Tim.

Carl Reichardt: Then second what you're thinking about in terms of finished lot options on the option side versus land bank options versus self development on the own side. And then last whether or not that mix is going to shift over time as you continue to do more smart series if we're expecting future lots to be more supportive of lower end homes or if you're happy with your. Your split right now between move up and smart series.

And just a big picture ones again for me. So your owned options, but on your lots of say roughly 50 50 I am curious.

If you are expecting that over the next couple of three years to change in any meaningful direction.

And then second.

What youre thinking about in terms of finished lot options on the option side versus land bank options versus self development on the one side.

And then last whether or not that mix is going to shift over time.

As you continue to do more smart series, if we're expecting future lots to be more supportive of lower end homes or if youre happy with you.

But right now between move up in Smart series.

Carl Reichardt: The answers are no not sure probably no let me be more specific. Okay thanks I'll get out of here. Right sorry for the sarcasm. I'm going to take part of that and then maybe fill a little jump in on. First question about owned versus option. As long as I think I've sat in this chair. The person sitting next to me has been iron asked and that's Bill Creek about not letting us ever get in the position where we own more than a two to three years supply, and he's right, and that's the way we think about the business.

So the answers are no not sure are probably no. Let me be more specific okay. Thanks, I will get out of Q.

Sorry for the sarcasm.

I'm going to take part of that and then maybe Phil I'll jump in on.

<unk>.

First question.

<unk> about owned versus optioned.

For as long as.

I think I've sat in this chair.

Carl Reichardt: On top of the two to three-year supply that we own, we try to control another several years beyond that so that we can achieve, you know, ten to fifteen percent top line growth if the market will allow. I don't see that changing. That is as, you know, there's not a lot of things in this world that are black and white. That's pretty black and white at M.I. Homes, so I don't see that changing.

The person sitting next to me has been iron asked and that is Phil Creek about not letting us ever get in a position, where we own more than a two to three year supply.

And he's right.

That's the way, we think about the business on top of the two to three year supply that we own we.

We try to control another several years beyond that so that we can achieve 10% to 15% top line growth if the market will allow I don't see that changing.

That is as you know.

There's not a lot of things in this world that are black and white, that's pretty black and white at homes. So I don't see that changing.

Carl Reichardt: The second question, remind me what it was again. I was asking about finished lot option contracts versus land bank on the option side and what percentage of it is. Land banking is not something that we're very, yeah, land banking is not something that we're very interested in. We don't feel we've never felt we needed to do it. I know some builders do and maybe they understand it better than we do, but it's not something that we've ever felt we needed to do.

The second question.

Me, what it was again.

I was asking about finished lot option contracts versus land bank on the option side, what percentage of land banking is not something that we're very land banking is not something that we're very interested in and we don't feel we've never felt we needed to do it.

I know some builders do and maybe they understand it better than we do but it's not something that we've ever felt we needed to do that our number one priority with respect to land.

Carl Reichardt: Our number one priority with respect to land and frankly, even now that's even more emphasized in our company is to do what it takes to secure premier locations. Things get choppy and we're seeing it now with rising rates. Many of our locations are still performing at a very, very high level. Shockingly so in light of, you know, the fact that rates have just gone up as fast as they have over the last, you know, twelve to whatever number of months.

Frankly, even now that's even more emphasized in our company.

It has to do what it takes to secure premier locations.

Things get choppy and we're seeing it now with rising rates are many of our locations are still performing at a very very high level.

Shockingly so in light of the.

The fact that rates have just gone up as fast as they have over the last.

12 to whatever number of months.

Carl Reichardt: So job one for mere locations and land banking, not particularly interested in, we'd love to maintain if we could a roughly 50% balance between that which we internally develop and that which we buy from developers on option contracts. Honestly, if we could, we'd love, you know, 80, 90% to be bought from third party developers under option contracts. That's not rational. That we wouldn't have a we wouldn't have a business if that's all we did.

So job one premier locations.

And land banking, not particularly interested in we'd love to maintain if we could a roughly 50% balance between that which we internally developed and that which we buy from developers on option contracts honestly, if we could we'd love.

80%, 90% to be bought from third party developers.

Under option contracts, that's not rational that we wouldn't have we wouldn't have a business. If that's all we did.

Carl Reichardt: There's too many markets where there's virtually no developers and we're not going to, you know, use our balance sheet to support land bankers. So right now we're, you know, the 50, 50 is a little bit skewed towards our own development. I'll let Phil jump into that. That's moved closer to 60 to 70% internally developed here over the last year or so. Yeah, Carl, just to say on that a little bit, you know, we like to own a two to three year supply of land based on current closing rate.

Theres too many markets, where there is virtually no developers and we're not going to use our balance sheet to support land bankers. So.

Right now.

50, 50 is a little bit skewed towards our own development I'll, let Phil jump into that that's moved closer to 60% to 70% internally developed here over the last year or so yes, Carl just to stay on that a little bit we like to own a two to three year supply of land based on current closing rate okay.

Carl Reichardt: Say with our closing run rate of about 8,000, you know, we're on about 23,000 so that's kind of where we are. And inside that two to three year supply, we like to have a one year if any slots. And again, that's about where we are also. So we feel good about what we own as far as off the books, tying up another year or two is fine. You know, we have a little over 20,000 lots off the books.

Stay with our closing run rate of about 8000.

We own about 23000, so that's kind of where we are and inside that two to three year supply we like to have a one year of finished lots and again thats about where we are also so we feel good about what we own as far as off the books.

Tying up another year or two is fine.

Have a little over 20000 lots off the books the risk dollars. We have in that is about 75 million buts. Its about 8% of the value of the contracts. We believe kind of the best land bankers the land seller, but again every deal is a little bit different.

Carl Reichardt: The risk dollars we have in that is about 75 million, but it's about 8% of the value of the contracts. You know, we believe kind of the best land bankers, the land seller, but again, every deals a little bit different. You know, Bob talked about, you know, job one is primary locations. You know, today we are developing 70 to 80% of our own land depending on the market. What we need to do, we really try to make as much as we can.

Bob talked about job one as premier locations, you know today, we are developing 70% to 80% of our own land depending on the market.

What we need to do we really tried to make as much as we can the.

Carl Reichardt: The land area, a competitive advantage for us. We have spent a lot of time the last couple years on our land acquisition teams, our land development teams, helping sellers, you know, get land, through zoning, through approvals before we take title to it. But, you know, we feel very good overall about our land position. And as we've said before when you look at our, you know, 17 markets, you know, we just opened our first community in Nashville in the last month.

The competitive the land area of competitive advantage for US we have spent a lot of time in the last couple of years on our land acquisition teams are land development teams, helping sellers get land through zoning through approvals before we take title to it but we feel very good overall about.

Our land position and as we've said before when you look at our 17 markets.

We just opened our first community in Nashville, and the last moth where.

Carl Reichardt: We're starting to get some things going in our Fort Myers Naples area. So we think we have room to 12, 13,000 units in our existing 17 markets. And we think our land position, you know, is really in good shape for the next couple of years.

We're starting to get some things going in our.

Fort Myers Naples area.

So we think we have room to do 12000, 14000 units and our existing 17 markets and we think that our land position.

Really in good shape for the next couple of years.

Carl Reichardt: Guys, thanks so much for all the detail. Just the last one is on the mix going forward between Smart Series and other product. If you look at your own bots plus your control bots in the future, if that's going to alter any meaningful way. Thanks. You know, I think it's going to go up a little bit more. We talked about this. It seems a number of times over the last two, three, four, five calls like this.

Guys. Thanks, so much for all the detail just the last one is is.

On the mix going forward between.

Smart series.

Yes.

Other product if you look at your <unk>.

<unk> plus year 12 months in the future if that's going to alter in any meaningful way.

I think it's going to go up a little bit more.

You've talked about this it seems a number of times over the last 234 or five calls like this.

Carl Reichardt: Remember when it was 25%, we thought we could get the 30 or 35. Then when it got to 35, we thought it could get to 40 to 45. Then when it got to 40 to 45, we thought it could get to 50 to 55. It's at 50 to 55 now. We continue to really push with more affordable product. I mentioned in my remarks earlier that several years ago, it's probably been three or four years ago, frankly, when we really set out and focused on designing even more affordable product with narrower single family, expanding our attached town home product offering from it was pretty good then.

I remember when it was 25% we said we thought we could get to 30% to 35 than when it got to 35, we thought it could get to 40 to 45 than when it got to 40% to 45, we thought it could get to 50 to 55, it's at $50 to 55 now.

We continue to really push with more affordable product I mentioned in my remarks earlier that several years ago.

It's probably been three or four years ago, frankly, when we really set out and focused on designing even more affordable product with narrow where single family.

Expanding our attached townhome product offering from it was pretty good then it's a lot more robust now so I think that with all of that.

Carl Reichardt: It's a lot more robust now. So I think that with all that. And just because of what's going on, I could see it getting up there to 60 or 65% at some point. When you look at our new communities and where things are headed, and we're getting better absorption. So even if the community mix stayed the same, the fact that the absorptions and with the more affordable product are holding up better.

And just because of what's going on I could see it getting up there to 60 or 65% at some point.

When you look at our new communities and where things are headed and we are getting better absorption. So even if the community mix stayed the same.

Fact that the absorptions and with a more affordable product are holding up better.

Carl Reichardt: Having said all that, our move up product is outstanding. It sells well, bears well, it margins well. I like the diversity. We don't have to put all our eggs in one basket and we're not going to. So I like, I like the mix. I like the small component of empty nester that we offer as well. I think we've sort of got the pieces in the right place. But it could go up a little bit, Carl, just because of what's happening in the economy.

Having said all that our move up product is outstanding.

It sells well.

Where as well as margins well.

I like the diversity.

We don't have to put all our eggs in one basket and we're not going to so I like I like the mix I like the small component of empty nester that we offer as well.

I think we've sort of got the.

Got got the.

The pieces in the right place.

<unk>.

But it could go up a little bit Carl.

Just because of what's happening in the economy.

Carl Reichardt: And, you know, 55% of our buyers are first time buyers. Now. And I think that's likely to, if that continues to stay about that level or even go up a little, you know, fueled by millennial and Gen Zers, which it likely will be, that could also push that smart series mix number up. You know, interesting Carl is that, you know, last year we opened a little over a hundred new stowers this year, we're on target, opened about 85, we've opened like 56 through the first nine months.

And.

55% of our buyers are first time buyers now and I think thats likely to if that continues to stay about that level or even go up a little fueled by millennial and Gen Z years, which it likely will be that that could also push that smart series mixed number up interest in Carl is that you know.

Last year, we opened a little over 100, new stores. This year, we're on target to open about 85, we've opened like 56 through the first nine months. So if we end the year with $2 25, or so 185 of them will have opened the last 24 months. So again, that's been a great opportunity for us not only location.

Carl Reichardt: So if we end the year with 220 five or so, 185 of them will have opened the last 24 months. So again, that's been a great opportunity for us, not only location, product and price point, we're really trying to pay attention to affordability for sure. That's great detail. Thank you so much, Phil. Thanks, Bob. Thank you. Thanks, Carl. Thank you.

<unk> product and price point, we're really trying to pay attention to affordability for sure.

That's great detail. Thank you so much Phil Thanks, Bob.

Thank you thanks Carl.

Thank you next question comes from the line of Unexpired housing Research Center. Please go ahead. Your line is open.

Alex Barron: Our next question comes from the line of Alex Barron at Housing Research Center. Please go ahead. Your line is open. Yeah, thanks guys and great jobs so far this year. Thanks, Alan. Your leverage has come down significantly. You've built a nice cash balance. I mean, if things continue as they are, you guys see the potential to increase the stock buyback activity. You know, given that, I mean, I don't know what else you guys plan to do with the cash, but can you comment on that?

Yes, thanks, guys and great job so far this year.

Thanks Al.

Your leverage has come down significantly you built a nice.

Our cash balance.

I mean, if things continue as they are you guys see.

The potential to increase.

<unk>.

The stock buyback activity given that.

I don't know what else do you guys plan to do with the cash but can you comment on that.

Alex Barron: Sure, Alex. And that's something obviously we watch very close. I mean, job one is always, you know, how the business is doing. What do we think the outlook is for the business? And again, we feel really good about that. You know, we will be spending, continue to spend money on land. You know, your today, we've spent about 600 million. We're spending a little more on land development right now. They are land purchases.

Sure Alex and that's something obviously, we watch very close I mean job one as always you know how the business is doing what do we think the outlook is for the business and again, we feel really good about that.

We will be spending.

Continuing to spend money on land year to date, we've spent about $600 million, we're spending a little more on land develop right now they are land purchases. So land spend will continue to take part of it we.

Alex Barron: So land spend will continue to take part of it. We did spend more on stock buyback in the third quarter than we did in the second and we spent $25 million in the third quarter. And that's something we'll just continue to look at because we do have a whole lot of liquidity, little more cash than we thought. It is benefiting from improved cycle time in that we have been closing the fee more houses than we thought we would.

We did spend more on stock buyback in the third quarter than we did in the second.

And we spent $25 million in the third.

And that's something we will just continue to look at.

Because we do have a whole lot of liquidity, a little more cash than we thought.

It is benefiting from improved cycle time and that we.

Have been closing a few more houses than we thought we would.

Alex Barron: And again, we're hoping to catch up in the field. I mentioned before, you know, right now we have about 1200 less homes in the field than a year ago. We do expect we'll put quite a few more houses in the field in the fourth quarter than we did a year ago and that'll take some cash also. But the short answer is we will continue to look at stock repurchases as part of what we are capital.

And again, we're hoping to catch up in the field I had mentioned before you know right now we have about 1200 less homes in the field than a year ago. We do expect we'll put quite a few more houses in the field in the fourth quarter than we did a year ago and they will take some cash also.

But the short answer is we will continue to look at stock repurchases as part of.

What we are capital.

Alex Barron: Yeah, it seems very interesting given that, you know, especially the market doesn't want to give you another builder's credit and the stock is trading below one time's book. So it seems like a great allocation of capital.

Yes, it seems very interesting given that especially the market.

<unk> doesn't want to give you another builders credit and the stock is trading below one times book, So it seems like that.

Great allocation of capital, but anyway. My next question is.

Alex Barron: But anyway, my next question is. You guys mentioned that your sales went up, I think north of 80% in September. I wasn't sure what the actual number was relative to August. So was that actually sequentially higher or it just looks bigger because of what happened last year. And if it was higher, was that because you guys get some type of sales event or like what drove that? You know, Alex's Bob said that the months in the quarter were pretty comparable.

You guys mentioned that you.

Our sales went up I think north of 80% in September.

Wasn't sure what the actual number was relative to August was that actually sequentially higher.

Look bigger because of what happened last year and if it was higher was that because you had some type of sales events or like what drove that.

Yeah.

Alex as Bob said.

Modest in the quarter were pretty comparable you know last year, we only sold 1300 homes in the third quarter, we sold.

Alex Barron: You know, last year we only sold 1,300 homes in the third quarter. We sold about 650 in July and August and a little over 700 in September. We did open a number of stores toward the end of the third quarter. So I wouldn't say there was really anything big different months and months in there. No, I mean, we did have some, you know, end of month promotion that we typically do every September around this, around this time.

About 615 in July and August and a little over 700 in September we did open a number of stores towards the end of the third quarter. So I wouldn't say there was really anything.

A different month to months in there.

Oh, no I mean, we did have some.

End of month promotion that we typically do every September around this around this time.

I think it was I think it was largely new communities.

Alex Barron: I think it was, I think it was largely new communities. I don't, I don't think there's anything really more to read into that. It was an easier comp. Also, which skews that somewhat, but the relative month to month, it was, it was pretty close, certainly within 10%. Got it.

So I don't think theres anything really more to read into that.

It was an easier comp.

Also which skews that somewhat.

The relative month to month. It was it was pretty close certainly within 10%.

Got it.

Alex Barron: And if I could ask one more, you know, some builders are offering money to, I mean, everybody, some degree or others find down the rates below market rates. But are you guys using more just money that you give individually to buyers to buy down the rate or are you spending more of the money on forward commitments? How are you going about, you know, lowering the interest rate for buyers? Well, I'm going to let Derek answer that because he understands that a lot better than I do.

And if I could ask one more.

<unk>.

Some builders are offering money too I mean, everybody some degree of others buying down the rates below market rates, but are you guys using more just money that you give individually to buyer.

Buyers to buy down the rate or are you spending more money on forward commitments.

Do you.

Going about.

Lowering the interest rate for buyers.

Well I'm going to let Derrick answer that because he understands that.

A lot better than I do but basically.

Alex Barron: But basically, the short answer is it's all done through our mortgage operation and my financial. We don't give the money to the buyer and let them go market and figure out who to do business with. Derek, if you want to talk about it, yes, or else, it's, it's, and Bob had mentioned earlier, it's really, you know, division by division, even community by community. But we do a combination of, you know, individual interest rate locks and forward commitments.

The short answer is it's all done through our mortgage operation financial we don't give the money to the buyer and let them go market and figure out who to do business with Eric Eric If you want to talk about it yes sure Alex It's Bob.

<unk> had mentioned earlier, it's really division by division even community by community.

And we do a combination of individual interest rate locks and forward commitments.

Alex Barron: We work with the divisions, what it's going to take, what the market's looking for. We don't, it's not a one-size-fits-all. We, we, we, we mix it all. It's all done through my financial with, with the blow market interest rates offered through our mortgage company. And is that a large percentage of your buyers that are taking advantage of those types of promotions or are there still some people who would rather use the money for something else?

With the divisions, what it's going to take what the market's looking for.

We don't it's not a one size fits all we mix. It also through <unk> all done through on my financial.

With the below market interest rates offered through our mortgage company.

And is that.

A large percentage of your buyers that are taking advantage of those types of promotions or are there still some people who would rather use the money for something else.

Alex Barron: Well, one thing I want to add, Alex, is that when we, when we price our houses, there's a certain amount, always priced in for financing and closing costs. And again, that's a subdivision by subdivision decision. Some people need help in closing costs. Some people need rate bought down for different reasons. And, you know, and as I mentioned earlier, we had an 86% capture rate in the quarter. So I think that shows the majority of the buyers like to use the mortgage company or the lower interest rates. Got it. Well, keep up the good work. Thanks, guys. Thank you. Thanks, Alex. Thank you.

One thing I'll add Alex is that when we when we price our houses there is a certain amount always price stand for financing and closing cost and again Thats a subdivision by subdivision decision some people need helping closing costs some people need rate bought down for different reasons.

And as I mentioned earlier, we had an 86% capture rate in the quarter. So I think that shows that a majority of the buyers.

To use the mortgage company or.

For the lower interest rates.

Got it well keep up the good work thanks guys.

Thank you thanks Alice.

Thank you we have one further question in the queue. So once again, if you do wish to ask a question. Please dial star followed by one on your telephone keypad now.

Operator: We have one further question in the queue. So once again, if you do wish to ask a question, please dial star 4 by 1 on your telephone keypads now.

Jay Mccanless: That next question comes from a line of Jay McCannless and we're push please go ahead to your line is so. Warner, guys, I think Derek he may have just answered my first question, which, what percentage of either closings or orders in the third quarter were people who use some type of financing incentives? You know, we don't necessarily track that, but just, you know, generally, it feels like the vast majority are using the below market interest rate. It's got to be in the high 80s, yes.

Our next question comes from the line of Jay Mccanless Wedbush. Please go ahead. Your line is open.

Good morning, guys.

Derek you May have just answered my first question, which what percentage of either closings or orders in the third quarter, where people have some type of financing incentives.

Yes, we don't necessarily track that but just generally it feels like the vast majority are using the below market interest rate, it's got to be.

Hi, yes.

Yes.

Okay, and then a couple of different questions on price first.

Jay Mccanless: And then a couple of different questions on price. The first one, what percentage of communities were you able to raise or hold price this quarter and how has that been sharing in October? Jay, that's a really hard answer. Every subdivision is a little different. You know, the communities that opened during the quarter, you know, we feel very good. They performed a little better than our expectations. You know, we track very careful what the margins are overall, because that's the ultimate test, and our margins have really continued to be pretty strong, but, you know, as Bob said, I mean, you know, the demand's okay, it's definitely been impacted a little bit recently with rates getting up, you know, at 8% range.

First one what percentage of communities, where you able to raise or hold price this quarter and how has that been sharing in October.

Hey, Jay that's a really hard answer every subdivision is a little different.

The communities that opened during the quarter.

We feel very good they performed a little better than our expectations.

Now we track very carefully what the margins are overall.

That's the ultimate test and our margins have really continued to be pretty strong.

But.

Bob said I mean, you know.

Demands, okay, it's definitely been impacted a little bit recently with rates getting up that 8% range.

Jay Mccanless: We feel pretty good about our pricing and our margins, but may very well be some pressure at the next couple of quarters. Jay, knowing what we know at this moment, likelihood that we're going to have any kind of pricing power over the next number of weeks, I don't see it. I mean, right now, demand's a little choppy. I think it's going to be sit tight, let's see how things are for a while.

We feel pretty good about our pricing and our margins but.

May very well be some pressure in the next couple of quarters J, knowing what we know at this moment.

The likelihood that we're going to have any kind of pricing power over the next number of weeks.

I don't see it right now demand is a little choppy I think it's going to be sit tight let's see how things are for awhile plus we're entering into are normally.

Jay Mccanless: Plus, we're entering into it normally, you know, as we get closer to, I can't believe it's almost here, but thanksgiving, things start to slow down anyway. So, you know, I think right now there's a little, I don't see much pricing, pricing leverage right now, in other words, our ability to raise prices.

As we get closer to I can't believe it's almost here, but Thanksgiving things.

Things start to slow down anyway. So.

No I think right now there's a little I don't see much pricing pricing leverage right now and.

In other words, our ability to raise prices.

Okay.

Jay Mccanless: The second question I had on price, if you look at the Southern segments average backlog price, that was went down from 543,000 last year to 503,000 this year, is that shift lower permanent because of what you talked about with more tax programs, more smart series, or is that just kind of a one-quarter anomaly and it should start to gravitate back higher? I think that we're very, first of all, the large part of it is because of a greater mix of smart series in the number of those markets.

The second question I had on price if you look at.

The southern segments.

Average backlog price that was went down from.

543000 last year to 503000 this year.

Is that shift lower permanent because of what you talked about more attached product with more smart series or was that just kind of a one quarter anomaly and it should start to gravitate back higher.

I think that.

We're very.

First of all.

The large part of it is because of a greater mix of smart series and a number of those markets.

Jay Mccanless: And, you know, we're, I don't know how much lower it will go. I think, at some point, average price starts to level off, but I think it's, that was not an accident, that was not something that, oh my God, what happened, that's a result of very intentional new communities, more affordable product, more attached, more narrow You know, trying to continue to offer what we think we do really well at even lower price points.

And you know we're.

I don't know how much lower it will go.

I think at some point average price starts to level off.

But I think it's.

That was not an accident that was not something that Oh, my God what happens.

And that's a result of very intentional new communities more affordable product more attached more narrow single family.

Trying to continue to offer what we think we do really well at even lower price points. Phil I don't know if you have any aggregate that J.

Jay Mccanless: Bill, I don't know if you have any. Yeah, I agree with that. You know, Jay, if you look, the backlog average sale price was 507, June 30th, it's 510, it's September 30th, I would expect that to come down a little bit next year as Bob said, you know, with more affordable product and those type of things, you know, in particular, you know, the next gets to be, you know, San Antonio and Houston is our most affordable price points.

Jay if you look the backlog average sale price was 507 at June 30th It's 510 at September 30.

I would expect that to come down a little bit next year.

As Bob said with more affordable product and those type things.

In particular, you know the next gets to be.

San Antonio and Houston is our most affordable price points again as those divisions go up and down some that impacts it but throughout our divisions again.

Jay Mccanless: Again, as those divisions go, you know, up and down, some of that impacts it, but throughout our divisions, again, you know, we've found HOME communities, attached to HOME communities. I think we had 24 of them at the end of the first quarter, at the end of September, we had 30. We had six more attached to HOME communities, and in general, those are more affordable price points. So, again, we're trying to pay a lot of attention to that because primarily we are in the payment business and we really want to watch affordability. Understood.

Townhome communities attached townhome communities I think we had 24 of them at the end of the first quarter at the end of September we had 30.

We had six more attached townhome communities and in general those are more affordable price point. So again, we're trying to pay a lot of attention to that because primarily we are in the payment business and.

We.

We really want to watch affordability.

Understood.

Jay Mccanless: And so, continuing on, maybe a little bit of a look ahead to 24, do you feel like you can still generate double-digit community growth? And you're going to end up with, I think, like, 15-20% growth this year. Should we expect something in that range for going into 24? You know, Jay, we don't have any projections out there at this stage, but, you know, do we expect the average community count next year to be up over this year?

And so.

Continuing on maybe a little bit of a look ahead to 'twenty four do you feel like you can still generate double digit community growth.

Youre going to end up with I think like 15%, 20% growth this year.

Should we expect something in that range for going into 'twenty four.

A J, we don't have any projections out there at this stage, but do we expect the average community count next year to be up over this year. The answer is yes.

Jay Mccanless: The answer is yes. We can't really hone in yet on a pointed time because we do develop a lot of our own stuff and it's take a little more time to get things open. But we do expect average community count to be up next year compared to this year. Jay, we're looking to grow the business. No, we're not going to get our leverage out of whack, you know, us. We want to keep our leverage really low.

Oh.

Can't really honing in yet on a point in time, because we do develop a lot of our own stuff and it's taken a little more time to get things open, but we do expect average community count to be up next year compared to this year.

Yeah.

Jay will then the only other thing.

Hey.

We're looking to grow the business.

No, we're not going to get our leverage out of whack you know us we want to keep our leverage really low we're not going to start getting our land owned versus optioned out of whack that's already been addressed during this call but.

Jay Mccanless: We're not going to start getting our land owned versus option out of whack. That's already been addressed during this call, but our goal is to grow the business and to continue to gain market share. That's going to take more communities. Understood.

Our goal is to grow the business and to continue to gain market share.

That's going to take more communities.

Understood.

Jay Mccanless: Okay, that's all ahead. Thanks guys. I appreciate it. Good to talk to you. You too. Thank you.

Okay. That's all I had thanks, guys I appreciate it.

Good to talk to you.

Okay.

Thank you and as there are no further questions in the queue at this time I'll hand, the floor back to speakers for closing comments.

Operator: And as there are no further questions in the queue at this time, I'll hand the floor back for speakers for the closing comments. Thank you for joining us. Look forward to talking to you next quarter. If now, please come from St. Cule, very much for attending. You may now disconnect your line.

Thank you for joining us look forward to talking to you next quarter.

Now please thank you very much for attending you may now disconnect your lines.