Bob talked about some of the challenges in Austin. Also, I think the Florida markets have been challenged a little bit, higher inventory levels. People talk about insurance costs and those type of things. But, again, overall to sell 2,500-plus homes the first quarter, we feel very good about that.
Bob Schottenstein: And let’s make no mistake, the Carolinas continue to be very strong for us, as does Dallas, and to some — and for the most part, Houston. So I don’t want to — I mean, you could — I don’t want to leave anything out that might mislead.
Jay McCanless: Sure. Thank you for that.
Bob Schottenstein: Every single one of our divisions hit their first quarter sales budget. That does not happen very often.
Jay McCanless: That’s a great accomplishment. I guess when you think about the northern communities, is there a heavier reliance on build to order there? Is it something that we need to think about or are you running the north and the south very similar at roughly 50% to 60% spec and that’s going to drive the closing cadence that you talked to Alan about?
Bob Schottenstein: Very similar. There’s no distinction. Spec — our approach to specs, there could be a few one-offs, but it’s no different — all 17 markets were pretty much approaching it the same way.
Jay McCanless: Okay. That’s great. And then…
Bob Schottenstein: And frankly, there’s a number of reasons for that. One is clearly the ability to more economically, if you will, provide financing incentives. Long-term mortgage locks are extraordinarily expensive, if — even if available, whereas a lot of the rate packages that you see advertised by us and I suspect many of our competitors, those are only really good for homes that can close within two months approximately. So by definition, spec — it’s either for a spec or it doesn’t work. So the importance of having spec inventory out there combined with hopefully smartly designed financing incentives is a crucial driver of sales.
Jay McCanless: Gotcha. Could you talk about…
Bob Schottenstein: And if they want a rate in our results — as you see a backlog average sale price over $500 and you see a delivery price of like $475. I mean, we’re seeing 30% to 40% of our closings come from specs that sell and close in the quarter. So they were not in the backlog at the start of the quarter. And in general, our specs tend to be lower average sale price. They tend to be more in attached townhouse communities. They tend to be more in the Smart Series. But again, a big thing driving our business is opening 20 new stores a quarter. Again, what is that product? What is that price point? Houston, San Antonio does a whole lot of Smart Series. By its nature, they have a few more specs. But again, you manage that based on, you want specs to move through the system.
We don’t want to have a bunch of finished specs, those type things and our spec levels are very comparable to where they were a year ago. We think we’re doing a pretty good job managing that.
Jay McCanless: Gotcha. Could you talk about how many homes you sold and closed in the first quarter and maybe what that number was last year?
Bob Schottenstein: It’s up a little bit. This year I think it was about 35% specs sold and closed in the same quarter. It was a little less than that last year in the first quarter, Jay.
Jay McCanless: And then the next question I have, what percentage of your buyers this quarter took some type of mortgage buydown assistance and how did that compare maybe to fourth quarter and what you saw last year?
Bob Schottenstein: Yes. Derek. Almost all of the buyers used some sort of below market rate. Some were just slightly below, some were the deeply discounted. Generally, it’s probably pretty flat to where it was last year. I don’t think there’s much differentiation.
Derek Klutch: Again, Bob talked about, using a more specific approach by community and by buyer. Some buyers need more assistance with maybe closing costs or those type things and just a little bit of buy-down. I mean, every customer can be a little different, and again, our mortgage company only takes care of in-my-home customers. We’re very focused on individual customers and communities.
Jay McCanless: Okay. So I guess the next couple of questions I have, I guess, maybe if you’ve got that many people taking mortgage buy-down assistance along with some incentives, I guess, what are some of the other operating levers that you pulled to get to this gross margin improvement from the fourth quarter to the first quarter? Was it geographic mix or what was going on there?
Derek Klutch: Well, again…
Bob Schottenstein: Why were our margins up as much as they were? Why were they…
Jay McCanless: Yeah.
Bob Schottenstein: … so much better than expected?
Jay McCanless: Yes. That’s it.
Bob Schottenstein: One, I think really good execution. It’s never one thing. It’s pricing by community. It’s pricing by product. It’s pricing to market. It takes a lot more work. But that’s what our people are paid to do, and they do it really well. We’re very fortunate in that regard. I think that we have some really well-located communities that have come on in the last year or so that are performing better than we even anticipated they would. And I think demand, in general, demand has been a little better than we thought. We’re very reluctant to cut prices just to drive volume. We are — in some submarkets, we see our competitors promoting with either big discounts to realtors for bringing people in or otherwise, and we — not that we do everything perfect, but we scratch our head when we see that and go, we don’t understand that.
The traffic is there. Why would you do that? But in some cases, there’s mandates from corporate by competitors to do things a certain way everywhere, and they are, whether it makes sense or not. I think that the targeted approach has always worked best for us. I think our margins have really held up well over the last period of time and I think comparatively they’ll continue to because I think we’re going to keep doing what we’ve been doing. I don’t know if I have a better answer than that.
Jay McCanless: Yeah. That’s great.
