Stephen Kim: Appreciate that. Thanks so much, Stuart.
Stuart Miller: Thank you, Steve.
Operator: Next, we’ll go to the line of Alan Ratner from Zelman & Associates. Please go ahead.
Alan Ratner: Hey, guys. Good morning. Yeah, thanks for all the detail and congrats on the great performance this year. Stuart, I’d love to get your thoughts because I heard a lot in the commentary about the tailwinds that you guys had over the course of this year related to tight inventory and the interest rate move these last few days or weeks has been obviously striking. But I think one of the great unknowns and uncertainty is what impact that does have on the resell market as far as potentially freeing up some inventory and getting some people move. And obviously, there’s puts and takes to that on your business. But what is your expectation there assuming kind of rates settle out near current levels as far as what that could do to the resale market and how the new home market might react to higher inventory levels in ’24.
Stuart Miller: Really interesting question, Alan. I thought about this a lot over the past year as the resale market has appropriately held down to mortgages that are very attractive interest rates and therefore, have not added to the traditional supply that defines the resale market. But the more I think about it and test my thinking, it just seems to me to be a zero-sum game if the resale market is activated by a tick down in interest rates, which it might be because in traditional fashion, first-time buyers find that the family is growing and they move up to a move up, second move up position. It does seem to me that to the extent that interest rates do activate the resale market and additional supply comes on the market, along with that supply comes additional demand because what has been missing from the market is the traditional resell buyer looking for that move-up home and decided the first-time market have been very thirsty for new home product because the traditional resell product simply hasn’t been available.
So I suspect if the existing home market is activated as interest rates do trend down, should they trend down, that it will result both in additional supply for the first-time buyer and additional demand for the move-up buyer. And we’ve been thinking a lot about that. And I think that we’re very well prepared for that migration as well.
Alan Ratner: Great. Appreciate your thoughts on that topic. Second, on the margin, interesting. So you’re not giving formal full year guidance, but I guess we can certainly piece together your expectations by you saying that you expect full year margins to be pretty similar to ’23. So that would imply a fairly healthy ramp through the year. I was hoping you can just give us maybe specifics on what type of trajectory on incentives does that imply? I would imagine land costs are going to be trending up in terms of what’s flowing through the P&L. So should we just interpret that as your expectation that incentive should come down 200, 300-plus basis points over the course of the year from where they sit today?
Stuart Miller: So if you go back to the days when seasonality was the norm, and we went on the seasonality hiatus for a period of time, that was always the case. The trajectory of our margin started lower in the first quarter and accelerated through the year. And I think Diane detailed that in her comments. That’s all — that has been the case. I think that in our case, specifically, as we went through the fourth quarter, the fourth quarter was a pretty rugged interest rate quarter, especially as we went through the first couple of months. And so I think that you have kind of an anomalous margin push down in our first quarter. I think that you’re going to see a normal flow of margin improvement as we go through the year. I think the more extreme incentivization in the fourth quarter to maintain pace was — it looks today as if it’s really a thing of the past at that level.
And as we look at where our margin is likely to go, I think we have pretty good visibility because we went through November and then early December and seeing the market kind of ease up and the buyers come back to the market as interest rates did start to ease. Jon, do you want to weigh in on that?
Jon Jaffee: Yeah, I would agree with what you said, Stuart. In addition, we did see as we moved into sort of the holiday season at the end of the quarter, less of a rebound as interest rates came down due to holiday seasonality, which is sort of normal. I also think that we should expect that the real focus on not just the fact that rates are lower, but more effective use of adjustable rates in order to bring down the cost of mortgage buydowns. The buyer still is in need of a lower effective interest rate to both qualify and afford homes at today’s prices.
Alan Ratner: Great. Thanks again guys. Appreciate it.
Stuart Miller: Thank you, Alan.
Operator: Next, we’ll go to the line of Kenneth Zener from Seaport Research Partners. Please go ahead.
Kenneth Zener: Good morning, everybody.
Stuart Miller: Good morning.
Kenneth Zener: A key part of even flow cadence is structuring land as a variable cost. I think, a very meaningful innovation for you guys. But can you quantify what percent of your closings have been coming from these finished homesites that average 85% to 90% of your purchases this year? So how much — what percent of the closings came from these finished homesites in the quarter? If you could give us some context, that would be useful versus last year or earlier this year. And then this is the key question, quantify the margin impact that you’re making versus the asset efficiency that you’re achieving? Because I think the latter point is misunderstood. That’s my first question. Thank you.
