Douglas Yearley: Well, it’s seasonality. November and December historically are slower months. You got — obviously, we know the holidays you have from Thanksgiving through New Year’s. And I’m actually pleased that we’re trending where we are. We’ve already said that historically, Q1 is down 20% because in Q1 you have this November and December. But we’re hopeful, and it’s a combination of the sales we’ve had to date to start the first quarter, plus these pretty dramatic drop in rates over the last few weeks, setting up what we think not from now through New Year’s, but in early January, we have, I think, very solid, legitimate reasons to believe that the market is going to have a good start to that spring season in January. We’re going to do better than that historic 20% down.
Martin Connor: Rafe, when we talk about seasonal trends, we’re talking about on a per community basis as well. So we’ve kind of already adjusted for a little bit more communities.
Douglas Yearley: Right. And one week doesn’t make a trend, but last week was a really good week. And I’m not going to read too much into that, but we’re going to stay where we are, which is it feels seasonal. The norm is down 20%. We think we’ll do a little better.
Operator: Thank you. And our next question today comes from Alex Barron with Housing Research Center. Please go ahead.
Alex Barron: Yes, thanks, guys, and great job. I wanted to ask in terms of incentives, particularly rate incentives. What seems to be working for you guys better? What are you offering that clients are — is causing them to come in?
Douglas Yearley: Alex, it’s a great question. It’s very interesting for us, and this may be a bit different from the other builders. We have all the programs the other builders have. We’ve got the two-one buy down. We’ve got the three two one buy down. We’ll take your 30-year rate from now 7.25% to 5.58%. You want it, we’ll call our mortgage company and we’ll figure it out. And it’s a great front-end marketing tool. It’s all over our website, it’s all over the email marketing campaigns we have with our clients. It drives traffic into our communities, very few take it. And the reason is, if we’re buying your rate down, we’re looking at a 30-year time frame. And most clients think to themselves. I’m going to be in this house five to seven years, which is the average amount of time that you’re in a home, or they think, I think I can refi at some point before that five to seven years and the incentive that Toll Brothers is wrapping into this rate buy down they have offered me as an alternative incentive to go have fun in the design studio and have a discount or a credit in that design studio.
And I’d rather upgrade my house on them than take advantage of a rate buy-down. So it’s driving traffic, it’s conversation but we are not seeing the stickiness that maybe others are. Part of it is, 26% of our buyers are all cash, and those that get a mortgage have a 69% LTV. And I think maybe — they’re obviously more affluent, maybe they take a little lower mortgage than they would otherwise have. That’s particularly true in active adult, where that LTV is probably closer to 50% because they have more equity coming out of their existing home and they’re thinking to themselves, I’d rather use the money to upgrade my home and refi earlier than maybe the formula shows. And so we market the heck out of it, but we don’t see a lot of takers.
Alex Barron: Okay, well, I appreciate that answer. It’s very great. Many other builders have been using forward commitments to push close to completion specs. Are you guys doing any of that?
Douglas Yearley: Yes. And the further along the home is, the less expensive the buy down is because you can lock a lower rate for 60 days or less cost than locking that rate for 90 or 120. So, yes.
Martin Connor: Buydowns got cheaper over the last month as well.
Douglas Yearley: Buydowns have definitely got cheaper. You’re buying down from 7.25% instead of 8.8%. So that, thank you, Marty. That’s exactly right. The other nice piece of news here that I’ll throw in, the loan limit on a conforming Fanny Freddie is up $313,000 since 2018. It just went up again, and that helps the business.
Operator: Thank you. And our next question today comes from John Lovallo with UBS. Please go ahead.
John Lovallo: Hey, guys, thank you first for squeezing me in here. Just a couple quick ones. The first one, just following up on Rafe’s question. The comment that you guys made about a little bit better than normal seasonality, was that specific to absorption or was that for total orders in the first quarter for order growth?
Douglas Yearley: Absorption.
Martin Connor: As measured by deposits.
Douglas Yearley: As measured right now by deposits.
Martin Connor: For our community.
Douglas Yearley: Because when we — whenever we give you guys some flavor on what’s happened since the end of the quarter to the call, and it’s usually three or four weeks, but because it’s fiscal year end, it’s five weeks, that information is always based on deposit activity. Because, as we take a deposit that can then take two, three sometimes we hope not, but sometimes four weeks to convert from deposit to agreement. On that subject, another good stat. Historically, we run about 68% of our deposits, converted to agreement. In the fourth quarter, 79% of the deposits converted to agreement. So when the people go through the process, they pick their lot, they give us the deposit, they start the process of finalizing their lot choice, their home design, their upgrades. It’s sticky. It’s now up to 79% of those deposits move forward.
