Bill Wheat: Mike, sticks, and bricks, we’ve been – the last couple of quarters have been seeing the benefit of lower lumber costs. However, across most other cost categories, in the vertical construction costs, we are still seeing modest inflation. So on a year-over-year basis in the quarter, our stick and brick costs were down 3.5% on a per square foot basis. But our lot costs were up 11%. So we’re seeing more inflation in our lot costs. And so, as we look forward into fiscal 2024, we would expect to continue to see inflation in our lot costs as land moves through and development cost inflation continues. And I think we would still expect to still see some modest inflation in some of the other stick and brick categories. There has been some recent moderation in lumber costs.
As we move through 2024, we’d expect to see some benefit from. But overall, I think we still expect costs to show moderate inflation. As far as price appreciation with the current rate environment, the volatility and the recent rise in rates, we’re not expecting any price appreciation. Our base case would probably expect a little bit of downward pressure on prices. And as we’ve already talked about, we are using higher incentives going into the first part of the year. Now rate environment can change. Strength of the market can change as we go into the spring, and so we’ll adjust depending on what we see in the market as we get further into the year.
Jessica Hansen: Carl asked about geographic mix, but that’s a good point here in terms of just our reported average sales price. We are continuing to shift, as we said in our prepared remarks, to more and more of our smaller floor plans to address affordability issues in the market. So we could have some downward pressure on price that’s solely just a function of product mix.
Operator: Your next question is coming from Matthew Bouley from Barclays.
Matthew Bouley: Just given all the, of course, interest rate volatility these past several weeks, I’m curious. Number one, given what you’re doing with rate buy-downs, are you finding that sales pace is reacting quickly to these sort of numbing moves in interest rates? That’s number one. And number two, I guess, just any color on your own sales pace into October and November, how you’re kind of thinking about seasonality of orders here in the first quarter?
Paul Romanowski: As you know, we don’t report on sales – forecast on sales, but we are pleased with our sales thus far into October. And you certainly see fluctuations in traffic when we see the kind of moves that we’ve seen over the last couple of weeks, both up and down in rates. But with our ability to hold stable rates through our interest rate incentives, we’ve been able to convert pretty consistently with the buyers that we’ve had out there. But any time you have fluctuations in rates, we’re going to see people pause for a period of time until they settle into the reality of what they can afford.
Jessica Hansen: We’re also going into the seasonally slowest time of the year. So November and December typically are the slowest sales months as you get to the holidays. So, we’re going to continue to focus ourselves on meeting the market, but not making any drastic adjustments to our business plan, and we’re going to wait and see how the spring unfolds and make sure that we’re continuing to start houses going into the spring.
Matthew Bouley: Secondly, on the rental side, I know you’re not guiding the top line in 2024. You did mention that multifamily units would be – I think you said, would be rising in 2024 year-over-year. Clearly, there is a lot of supply coming online, I think, in the multifamily world broadly. What can you say around the margin side and what you might be expecting on the margins of those multifamily unit sales next year?
Michael Murray: I think we will see probably margins compress a bit on those multifamily sales just if interest rates have come up and cap rates tend to come up. The question of how much supply is out there is really specific to a given project in a given submarket that that project serves. And our team has done a great job of looking at those submarkets when we made the decision to move forward with the projects, cognizant of what was available in the marketplace, both ahead of us and behind us from a supply perspective. So we feel pretty good about being able to deliver into a healthy demand environment. We’re still seeing good lease-ups in our rental properties, in line with expectations. So we’re very encouraged by that.
Operator: Your next question is coming from Alan Ratner from Zelman and Associates.
Alan Ratner: First off, congrats to Paul and David, and good luck with the transition. Second, I think the topic that we get the most questions on are the sustainability of the rate buydowns that you guys are offering and the industry is offering right now. I guess my question to you, and I hear through – I listened through some of your comments on the puts and takes on margin and lot cost inflation starting to accelerate and maybe stick and brick costs also inflecting higher again after being a good guide this year. Is there a point where you look at your margin, which, obviously, it’s very healthy today, but a point where it becomes harder to continue buying down that rate 100 basis points, 150 basis points, and what is that threshold for you?
Michael Murray: We’re going to operate the neighborhoods, but focused on return as usual, Alan, and it’s going to be a pace and a price conversation continually. And the rates buy-downs, the incentives that we offer, it’s just part of the mix of the cost environment that we deal with. And while we’ve seen some nice relief in the stick and brick cost, we have had some price pressure on other sides of it, but fuel prices have come down. That should give us a little bit of relief across a pretty broad spectrum of commodities as well as delivery costs. So it’s a constant give-and-take on the cost and the margins. And our primary focus and guiding star is returns.
Jessica Hansen: And we’re going into the year with a very strong start. We did say that our gross margins are expected to decline in Q1, but we’re coming off a 25.1% in Q4, which is below the peaks that we achieved last year. But it’s still a very healthy gross margin that gives us some room to meet the market and maximize returns and still post very healthy returns.
Alan Ratner: Makes sense. Absolutely. The starting point is certainly very healthy, Jessica. So I appreciate that. Second question, would love to hear your thoughts on just credit availability in general. On one hand, I think there’s certainly a nice tailwind to the public builders given your balance sheet and access to liquidity and capital and the ability to use that to take market share. On the other hand, your suppliers and your trades are certainly dependent on credit availability to fund their businesses, and headlines out of the Fed report yesterday, obviously, point to continued tightening there and your land developers probably are dependent on bank credit as well. So in your conversations with trades and suppliers and developers, are you starting to see any indications of stress throughout the channel as a result of credit tightening? And on the flip side, are you seeing any opportunities come from that?
