Jon Jaffee: I think that’s the right articulation as you said in your opening remarks, Stuart, we’re continuing to learn about the execution of our machine. And as we turn the dials, whether it’s interest rate buy downs or incentives or the flow through our digital funnel or the selectiveness of brokers, we’re in that stage where we are trying, learning, experimenting and providing the feedback to how we get better and more efficient at each of those levers that we pull to drive this consistent production and sales pace.
Michael Rehaut: Great. Thank you for that. I guess secondly, just drilling down a little bit more on the gross margins and understanding it’s a pretty fluid situation, certainly. But against kind of a backdrop where you’ve done low 24% gross margins in the back half of ’23, now you’re talking about low 21% in the first quarter, but perhaps the full year getting back to something around what you did on a full year basis in ’23, it would seem like this upcoming first quarter, obviously you took steps to ensure volume and orders coming in the door that appear to be maybe, I don’t want to say extraordinary, but you did what you needed to do, let’s say, to ensure those volumes coming through at maybe a little bit more of a stress period.
Is it fair to kind of think about perhaps a 200 basis point or 200 to 300 basis points this type of first quarter deviation as being kind of — I don’t want to say a onetime event. But as you have the more recent interest rate backdrop coming back to late summer, and where you did a gross margin closer to that 24%, is there any reason not to think that you’ll be getting back to that 23%, 24% type of gross margin and relatively short order outside of, again, perhaps some more aggressive measures that you took from an [Technical Difficulty] that are kind of tangible and quantifiable that you see as more of just affecting the first quarter. Is that kind of the right way to think about kind of moving past this period in the very short term?
Stuart Miller: So it’s a great question, Mike, and it’s one that we’re thinking a lot about. And I think that the answer to that is we’ll see, but it is our instinct that, that is very much the case. As I noted in the fourth quarter, you really saw as interest rates started to migrate above 7.5% towards 8%, as I said in my remarks, it really felt like you were hitting an inflection point where you really felt in the field that the buyers were maybe starting to hit a tipping point of losing some confidence. The way I think about it is as we’ve gone through this time of higher interest rates, even as we saw a sharp increase in interest rates at the inception, we were able to see incentives work. The incentives were able to help the buyer get to a point of affordability, and they transacted on the need for their housing.
As we got into the fourth quarter, they were starting to get to that point where we weren’t sure that incentives, even on the aggressive side, we’re going to work. Time went on, interest rates started to moderate just a little bit, not kind of as they did in the past couple of days, but just that moderation took kind of the edge off. And maybe the market needed to get to a new normal. I don’t know what that was actually going to be. But the question is — the answer to your question is we did what we had to do. We did what it took to activate the market at the moment in time. We’re not going to build inventory. We are not going to pull back on the overriding strategy, we’re driving cash flow. We’re going to meet the market where the market is, and we’re going to drive through it.
And that’s exactly what we did through our fourth quarter. You’re right that some of the margin impact might be a bit more severe as we reflect that through the first quarter and there could well be a kind of snap back and we’ll have to wait and see because we are going through the seasonality of this time of the year right now.
Jon Jaffee: Stuart, if I could add, as you think about the machine and the process that we’ve been describing to you for quarters now, it’s really a reflection of the reality that none of us have a crystal ball at any moment in time to see which way rates or buyer enthusiasm is moving. So as we sat in the fourth quarter, we just dealt with the rate for what they were versus a speculation of where they might go. And so as Stuart just articulated, we appropriately used mortgage rate buydowns to keep a pace going. As we sit here today, rates look better. But again, we don’t know where they’re going, but we’re well positioned to just maintain that pace, which by definition means we would use lower-cost mortgage buydowns, continue to drive the consistent pace. So as Stuart articulated, we’ll use our margin as a sharp absorber given market conditions, interest rate environments, and you should see it move up and down as the market moves up and down.
Stuart Miller: One last thing I’ll say is, an interesting anomaly that we noted through our fourth quarter was, there was a greater reluctance to use an ARM product that would normally take place as we go through an interest rate cycle and much more focus on a 30-year fixed buy down, which was more expensive. And just a small tick or normalization of interest rates, and especially what’s happened over the past days, really is migrating the attention of buyers through the prospect of an ARM product being more acceptable. This, of course, reduces the amount of incentive that’s flowing through the system. And so we’re going to have to wait and see. Again, it’s [touching the feed] (ph) day-by-day basis, and that’s what we’re working on. Why don’t we take one more question?
Operator: Thank you. Our final question comes from Susan Maklari from Goldman Sachs. Please go ahead.
Susan Maklari: Thank you for squeezing me in. Good afternoon. My first question is just building on your comments in response to the last question, which is as you think about coming into the year with less than one finished spec per community, which is low and especially relative to maybe some of your peers that are in sort of similar product price points market, how do you think about the ability to leverage the improvements in the Lennar machine to flex the business to get to the 80,000 closing that you’ve guided to or to even perhaps flex up or flex down relative to that number depending on how the market comes together this year?
Stuart Miller: Look, to that extent, everything that we are doing, even the migration to the larger number of deliveries is by design. It’s about the number of communities that we have and the pace through those communities. And this is becoming very much a focused detailed program that is managed by Jon with what we call our daily call, it actually every other day, and our operating group is laser-focused on production pace, starts pace, cycle times dovetailing with sales pace at the division and community level. This is being handled on a very active hands-on basis. Jon you want to?
