Alan Ratner: Great. I appreciate the thoughts there, Bob. Second question, just thinking through, the sensitivity, I guess you guys have on a price versus volume side. You mentioned an expectation for a tick up and incentives in the fourth quarter. I think a lot of your peers are saying the same thing. The big difference between you guys though and them is your margins are a bit thinner, so presumably a little bit less cushion to absorb and more meaningful increase in incentives here with margins kind of in the high teens. So how do you think about that trade off? At what point either from an absorption standpoint or sales standpoint, would you get much more aggressive on incentives and at what point would you go back and say, we’re not going to discount anymore because our margins are at a point where we don’t want to go below that?
Bob Martin: I think in Q4 you have the impact of seasonality. So we have to take that into account. There’s only so many buyers out there buying as we approach the holiday season, but we want to be competitive. So we are looking at our competition, how many there are selling and what price it takes, to sell, there is another end to the equation. Certainly, the margin is one thing, but the velocity with the inventory turns certainly is important as well. So we want to strike a balance. We don’t want to go down to next to nothing kind of sales. Because we know that is something that is demoralizing to our teams, to our sales teams, certainly, so that wouldn’t be appropriate as well. So if we see that we’re keeping up with really a good seasonal pace, I think that’s a good guide for us, although there’s no absolute.
We’ve got to look at it subdivision by subdivision and making sure we’re remaining competitive. I guess, I would also add just given our land supply being amongst the lowest in the industry, that’s really something that insulates us as well not having so much pressure on us to monetize land, at any given point in time.
Alan Ratner: Got it. Appreciate the thoughts. Thanks a lot.
Operator: [Operator Instructions] Our next question comes from Truman Patterson from Wolfe Research. Truman, please go ahead.
Truman Patterson: Hey, good afternoon, everyone. Thanks for taking my questions. First one, just want to understand what you’re seeing on the land front, specifically given some of the tightening and lending to the private builders and developers, are you all actually finding any finished lots come to market, just a general update on kind of land pricing and really trying to understand when you’re underwriting a deal today. What level are you able to underwrite to from a gross margin perspective, should we be thinking something in kind of the high teens?
Bob Martin: I guess I’ll start off by saying we were fortunate that the majority of what we bought and what we approved, we were finished lot deals during the quarter in fact, I think it was close to 80%. So, we have seen some finished lot deals. It is competitive out there for deals, generally speaking. So, I imagine there won’t be nearly as many in the future. From an underwriting standpoint, the 2020 rule still applies in terms of margin and IRR. Although I would say for something that truly is finished, where you are taking all that development risk off the table, and you can actually start building houses immediately, you would go into the high-teens for that kind of deal, potentially. So, all depends on the deal. But right now, most of the deals that we have done during the quarter are ones that can add closings in sales relatively quickly.
Truman Patterson: Got it. Understood and thanks for that. This is a little bit near-term focus, but could you give an update on kind of October demand trends and then maybe perhaps go across some of your metros or regions just given the recent rate move, which areas have been relatively outperforming or underperforming would be helpful?
David Mandarich: So, for October, I think October has been healthy considering seasonality. It’s really in line with normal seasonal patterns. And we think it’s moving along very well, so that’s October. In terms of regional focus, it’s interesting to see a 2.4 absorption rate for every one of our regions for the third quarter. And I think it speaks to the resilience of all the markets. There are markets out there where we know the consumer base maybe is a bit more credit challenge. I think you see some of that in Phoenix. You see some of that in Orlando, for example, Las Vegas. So, those are areas that typically have a sensitivity to affordability. That said, I think we have been able to manage through it with our special financing programs, and offering closing costs and those kinds of programs. So, I don’t know that there is any one location that strikes me as particularly impacted or disproportionately impacted.
Truman Patterson: Okay. Great. Thank you all and good luck in the coming quarter.
David Mandarich: Thank you much.
Operator: And we will proceed with a question from Ken Zener from Seaport. Ken, please go ahead.
Ken Zener: Hello everybody.
David Mandarich: Hi Ken.
Ken Zener: So, you guys like in the interest income I take it the $20 million this quarter, is that fair to rate, just to think about going forward, all else being equal?
David Mandarich: For now, certainly it ties to where interest rates move more broadly speaking. And of course, we are hoping to invest some of our capital into additional homebuilding assets to bring those cash balances down maybe just a smidge. So, those are the two factors. But right now, it seems like we are going to continue to earn a healthy rate.
Ken Zener: Yes, a good rate, finally. So, you have a more spec bias. Things are more seasonal, is what that you are seeing. Yet your starts exceeded your orders in 3Q. Could you talk about that decision as it relates to the fourth quarter or and then perhaps more broadly, you are thinking about that strategy?
David Mandarich: Yes, the starts during Q3 were just shy of 2,400. So, that did easily exceed our net orders. And I think we are thinking about spring selling season and making sure that we have the right amount of inventory for spring selling season. With rates being where they are still at recent highs, decades highs, at this point, we know it’s still going to be pretty important for our consumers to be able to know what their interest rate is at the time they buy their houses, at least for the majority of consumers. And I think that means specs, so we want to have that inventory in place to end the year. So, that’s why you see the differential.
Ken Zener: Do you – and I have a couple of follow-up questions here, because that does make sense. Do you think and others could chime in, given the perspective about the interest rate, your shift to back which makes sense. Was that something that was experienced, let’s say in the late ‘70s, David. And yes, that’s my first question. I have a couple here for you. So, I apologize.
David Mandarich: Well, actually, if you have got to the Jimmy Carter years, Larry and I experienced mortgage rates that were 17 to 18. And at that time, we did forward commitments that were 13.5. So, this is – this seems like a pretty good market compared to when Carter was President.
Ken Zener: Well, related to that, one of the things, the dollar bottomed in I believe October ‘78. But home prices were exceeding inflation then. And there is obviously a variety of housing price metrics out there. If you consider them in the low-single digits, one of the differences now is that prices aren’t appreciating on a real basis. Do you have any context for how that influenced – influences buyers, because I know it was one of the big carriers in the past to explain, sure, you had to pay a lot of mortgage, but prices were appreciating faster than that, so it’s kind of a moot point in my opinion?
David Mandarich: It is what happened in the late ‘70s was a lot. What’s happening today, there was actually a shortage of houses. And so not only…
