Operator
Thank you. The next question comes from the line of Stephen East with Evercore. Please go ahead with your question.
Stephen East, Evercore
Thank you. Good Morning guys. Jeff, I appreciate you walking through, you know, what’s sort of driving it and how you all think this plays out. If you look at the one queue where you say, you think this would be the bottom. I guess, what gives you the confidence there that one queue is the bottom and then you grind off of that level?
Jeff Mezger, President, Chief Executive Officer and Director
Well, for the start Stephen, you have the leverage side, and our 1st quarters always are lowest revenue quarters, so we have the biggest leverage impact on the fixed portion of our gross margin. And as I shared in my comments, we have been growing in this area. So, you have a double hit – that your revenue is down while your cost is up. If you go back to our community count guidance, your community count is going to be up year over year – 40 or 50 communities, whatever the number is – and there is a cost associated with that – in many cases without the revenue tied to it until the 2nd, 3rd or 4th Quarter. So, that is some flexion point, where our costs are being hit by overhead and we don’t have the revenue pull through yet. So, you’ll see that coming through as the quarters play out over the year. And after that, the other side that we know, as we look at it is the mix of our business – communities opening and communities closing. That’s how we see it today and we are hopeful of finding upside in the cost areas and revenue areas going forward, but those two certainly are driving the support for our comment.
Stephen East, Evercore
Okay, and that makes sense. The second question is sort of a combined question. If you look at your market, you know, let’s take leverage out of the picture for a minute, when you look at your pricing and incentives versus your cost, which would be the bigger driver of reducing gross margins or putting pressure on gross margins? And then, historically, if you have just looked between your California margins and the rest of your regions, what type of magnitude did you historically see there?
Jeff Mezger, President, Chief Executive Officer and Director
I think it’s hard to differentiate between price and cost because we have both going on at any given location. It’s hard to say it’s just one or the other. If you are in the Bay Area, the prices are continuing to move up quickly, costs are [inaudible 39:] , hopefully they are not, but they are probably going up right with it. Then we have other areas where you have this crossover, where costs have increased while pricing in the short run has softened. So you have that component going on with this as well. If you go back to my prepared comments where we did see in the Quarter, the Inland areas of California required a bit softer than they have been while the coastal areas held very well. So you have this dislocation that built up within the same reporting region for us. You have areas at the bay area where it is as good as it has ever been, while the Inland regions have softened quite a bit.
