And our homes are pulling 30s and low 40s. They’re going to go see 70s and people are bragging about them. So those are some of the characteristics that are different. I don’t know if that totally answers your question. If we go a lot deeper, I want my building science people to get into it. But I will tell you, I’ve highlighted the features in this exhibit. So that you can see very clearly the things that a buyer sees and understands. If we do our job, this just makes it a better home.
Alan Ratner: Got you. So on that point though, I mean is the better margin, would you say more of a cost savings or, it sounds almost from what you’re describing, you almost get more of a price premium given all of these features in the home. So is it more of a price versus a cost savings standpoint?
Allan Merrill: Yes. It’s definitely a price issue because the cost to build these homes are higher than the cost to build our prior series homes.
Alan Ratner: Got it.
Allan Merrill: And Dave talked a little bit about 2025 and I mean it’s obviously early, but the thing that we have seen, every community or every division started with one community with zero energy ready and one home. And then it was the whole community and then it was two communities and this ball rolling downhill in terms of building momentum. What’s really starting to happen is the trades get it. They are seeing benefits in cycle time. For example, our HVAC contractors are able to take a couple of days out of the install with the advanced duct install with our homes. They didn’t know that at first. They were charging us a premium. They’re like, we don’t know what this is. We haven’t used these products, we don’t understand it, we don’t really want to do it.
You’re going to have to pay extra to get us to do it. Now they look at it and say wow, this home is actually going to be much better from a warranty standpoint, it was faster for us to build. Yes, we’ll do that again, please. And we haven’t, I don’t think, really scratched the surface and clawing back some of those savings, though today it is the fact that these homes are more expensive to build. And I don’t want to in any way diminish our efforts to date, but I still don’t think we’ve really scratched the surface on truly connecting buyers with realizing this is a home they cannot buy anywhere else. And I have done this personally in markets when I travel. Let’s go look at a $2 million home and let’s see what their HERS score, what their ACH score is.
Let’s ask questions like to create a comparator to the kind of home that we’re buying or building. We’ve got an opportunity to get better and better at explaining that. And that’s why I think the revenue side is an opportunity as much as the cost side is.
Alan Ratner: Great. Thank you for all that detail, Allan. And I’m not surprised you had the slide prepared for us. So thank you for that as well. Second question, if I could. You mentioned the slide in your first quarter deck that kind of had the three scenarios, and I happen to pull it up. And the downside scenario in that deck is an environment with rates in the high sevens, which we’re kind of pushing back up against today. I’m sure that’s not what you and everybody expected three months ago. But on that slide, you also said, and I guess in that environment you would expect the sales pace to be sluggish and incentives to be higher. It doesn’t sound like from your comments, you’re really seeing that effect from the move-in rate.
So I’m just curious if you could maybe just talk through what you are seeing in response to higher rates. Has the consumer been largely agnostic to it? Are you incentivizing more to kind of buy down the rate or do other things to improve the affordability equation, given the move higher.
Allan Merrill: We haven’t seen a dramatic shift in incentives, particularly financial incentives. We have seen a migration, and that overstates it. We’ve seen a move toward more temporaries than permanents as rates have moved up. Obviously, you get pretty good bang for the buck on a two one or a three two one [ph]. And in a higher rate environment, I think some buyers are analyzing that and saying, well, it’s unfortunate, but with attempt I am going to get a lower pay rate for a few years and I will have an opportunity to refinance. I’m always at pains to point out, I don’t know why I feel so strongly about it, that, of course, when buyers use temporary buy downs, they do qualify at the full pre buy down rate. So this is not creating a different kind of a housing problem.
And those of us who’ve been around the industry a long time, want to always be very clear about this isn’t like some previous period. But we are seeing a little more interest in the temporary buy downs. And the other thing that we saw, and we saw it in the second quarter, and I think we’re going to see it in the third quarter, and frankly, it’s going to help us a little bit, is, I think, heightened interest in specs. I think that’s the other thing that happens. And given that, I’d really like our remaining spec or Star and Plus series to go away in the third quarter, I’m okay with that.
Alan Ratner: Got it. All right. Thanks as always, I appreciate it.
Allan Merrill: Thanks, Alan.
Operator: [Operator Instructions] Our next question comes from Alex Barron from Housing Research Center. Please go ahead.
Alex Barron: I’m sorry. Thank you, gentlemen. Yes, I wanted to focus on shared buybacks. I heard you mention it a little bit at the end, but I was just curious, what would it take at this point, given the valuation for you guys to step up and buy – start to buy some, given the big discount to book value?
Allan Merrill: Well, Alex, we tried to make it pretty clear in the prepared remarks. We have a framework that we use. It’s a consistent framework that looks at risk versus reward. And I would tell you we have a $40 million authorization that’s currently outstanding. And given where the stock is currently trading, not just from where the book is today, but where we see and have visibility on where it’s going to be over time, it looks like a much more attractive use of our capital on a go forward basis from a risk and return perspective. I won’t get too detailed beyond that, but clearly we’re looking at it and evaluating it all the time on a real time basis.
David Goldberg: I’ll go a little further. I think we will be in the market executing against some share buyback. What we’re not going to do, Alex, is just say, hey, at any price, it’s the right thing to do. But in the current context of the share price, I do think that we will be participating in share buybacks when our window opens this quarter.
