Michael Rehaut: First question. I just wanted to circle back to some of the commentary around the more recent trends and the outlook for first quarter orders being a little better than historical seasonality. And importantly, you kind of highlighted that you didn’t really have to raise incentives in October, and I believe you raised pricing during the quarter, the past quarter, about 1%, 1.5%. Given where we are today and maybe some of the more recent trends that we’ve seen going into the current quarter, and some of the optimism, I guess, that you talked about around the recent decline in rates into the spring. How should we think about, like for like pricing in 2024 particularly as you’re still seeing pockets of inflation here or there across the construction cost spectrum?
Douglas Yearley: Great question, Mike. We certainly don’t have the crystal ball as to where the spring will end up. But I will tell you that I am a lot more encouraged sitting here in the middle of December than I was a year ago. On October the 19th, we hit 8.25% for a 30-year no point mortgage. And I checked the rate sheet this morning before I walked in here, and today we’re at 7.25%. So we’re down 100 basis points in the 30-year mortgage in six weeks. It’s December, I can’t sit here and tell you that that’s translating immediately in the last couple of weeks results because of seasonality, but it sure feels good heading into the spring season. And boy, the timing couldn’t be better for a rate to drop like that in December setting up that mid-January launch of the spring season when most homes are sold.
The 10-year is at 417 basis points, remember, the historic spread from the ten-year to the 30 is 170 basis points. If that historic spread was in play today, that’s a 578 mortgage off of this 10-year. I think we all believe the 10 year still has room to move south. And at some point, when there’s more confidence in the longer-term macroeconomic outlook, the spread is going to come down from where it is now to something closer to that 170 basis points. So, again, I don’t have the crystal ball on rates, but it sure feels good. And there’s reason to believe that this 7.25% we sit at today may even get better and that just sets up really well for this spring season. Where we have the most pricing power that’ll be market by market. We make those decisions on a very local community-by-community basis.
We have many, many communities opening during the spring season we talk about 10% community camp growth, but that’s a net number. We’re going to have many communities sell out, and we’re going to have over [indiscernible] new communities opening in 2024. And over the last few years, there’s been a lot of hype with the launches of these new communities because of the pent-up demand as people wait for that new community to open up. So I know it’s a soft answer for you, but that’s the best I can give you. But sitting here today with where rates stand, with where sentiment stands, with how the company is positioned, with new openings, and with the spec strategy that will be adding more homes available to purchase at various stages of completion, as we roll through this coming spring, we have optimism.
And therefore we think we will be able to raise prices and we will be able to continue to manage and hopefully continue to modestly decline the incentive — reduce the incentive.
Michael Rehaut: Right. No, that all makes sense, Doug, and I appreciate the answer. Maybe secondly, just kind of looking at some of the broad strokes around order trends, you talked about sales pace maybe being potentially around 26% versus maybe that’s up about 10% or so versus the last year or two. Talking about community count also about 10%. So you’re talking about roughly a 20% growth in orders, if those numbers kind of flow through, that would still kind of trail the midpoint of your closings for the year. And so you’d actually end up with a backlog down year over year once again in 2024. As a result, in order to have closings growth in 2025, you’d actually have to further turn your beginning year backlog faster, maybe something 1.8 times or something around that if you’re having a moderate level of closings growth, is that something you’re comfortable with in that type of scenario?
Obviously, you talked about spec increasing as a percent of sales. I don’t know if that would continue to increase in — over the next year or two. You have turned your beginning backlog in that 1.5 times to 2 times range in the past. So is that a scenario that is reasonable in your view?
Douglas Yearley: Yes, we are committed to the new spec strategy. I think in the industry, we’re on the low end for sure of the percentage of our homes at our spec. We’re very careful in that strategy. But as we’ve strategically come down in price point, there are more opportunities for us to build more spec. We also know there’s a void with the tight resale market for those buyers that want to move in faster because maybe they went to market and were looking for a resale, they couldn’t find what they wanted, but they had in their mind an earlier move in date than the typical 12-month build to order construction cycle time. And so yes, the strategy is working. We are committed to it. And as Marty said earlier, many builders define spec as a home that’s much further along and there’s no opportunity for choice.
