Phillippe Lord : Yes, that’s 100% fair. I mean, it’s 100% accurate, right? Our fourth quarter guidance, most of those homes are sold. We’ve locked those folks in at the rate that we need to, to get them through the homeowner journey. So it’s captured in our fourth quarter guide, what we’re utilizing to acquire those customers.
Mike Rehaut : Great. Thanks so much. Good luck.
Phillippe Lord : Yes. Thank you.
Operator: Thank you. Our next question comes from John Lovallo with UBS. Please state your question.
John Lovallo : Hey, guys. Thank you for taking my questions as well. Maybe on the cost side, I think you mentioned relatively stable year-over-year costs in the third quarter. Can you just help us maybe break this out a little bit between what you saw for land, labor and materials? Were they all sort of similar on a year-over-year basis? Or were there some offsets within that group?
Phillippe Lord : Yes. So I would say — you’re talking about year-over-year?
John Lovallo : Yes.
Phillippe Lord : Yes. So it’s — we’ve obviously shared what our direct costs have done year-over-year. Most of that’s been lumber, but there are some offsets and other places, so it’s relatively stable. Labor has been also stable for the most part. But certainly, higher land costs are flowing through as we open up new communities at higher land basis or higher land development costs. We don’t give out the level of detail between all those cost components, but again, stable labor cost, stable vertical costs, but higher land costs.
John Lovallo : Okay. That’s helpful. And then maybe on that mid to high single-digit closing outlook for next year growth. How are you thinking about that in the context of the overall industry and what new home sales growth could look like? And then in terms of just the health of the general consumer and the economy overall?
Steve Hilton: Yes. I think generally, what we’ve read and heard from the folks that talk about the macro level, given the backdrop of the used home market being locked up, I think they’re expecting kind of low-mid-single-digits. So we think that’s about right for us. We have the land in place to achieve that growth as long as the market doesn’t regress from here. So this is what we know today. The current market conditions, what we’re able to do in Q3 and what we’re feeling in October. We feel confident about that guidance, and we think that will be increasing our market share in the market if we’re able to accomplish that.
Hilla Sferruzza: I would say also, if you want to read through a telegraph our commitment to the continuation of the rate locks, right? We’re making a commitment to make sure that to hit our absorption pace, as Steve mentioned, we’re to get to that number, it’s mostly community count based. So, in order for the absorption to hold steady at the current rate, we’re committed to making sure that we’re solving the home affordability question, whether that comes from rates coming down organically or us helping the rates to come down. We’re committed to making sure that we’re in the affordable price end.
Steve Hilton: Yes. I mean after the — obviously, after experiencing the demand we did in Q3, we’re pretty optimistic that the spring selling season is going to be there based on what we’re seeing today.
John Lovallo: Sounds good. Thanks very much, guys.
Operator: Our next question comes from Alan Ratner with Zelman & Associates. Please state your question.
Alan Ratner: Hey, guys. Good morning. Thanks for the time. Phillippe, first question on the start pace, I know you indicate that the goal there is ultimately to match starts to sales, which certainly makes sense. But, you’ve been running at a hotter pace recently on the start side. You’ve started about 20% more homes than contracts you’ve written in the last two quarters. And it sounds like in the fourth quarter that gap is going to potentially widen further if you maintain a 4,000 start pace. So, what I’m trying to figure out, if I take your initial 24 commentary on mid to high-single-digit growth that still doesn’t quite get you to a 4,000 quarterly unit run rate. So, at what point should we actually see orders converge with that level? Or is this an inflated start pace and something more in that the mid-3,000 might be your longer-term target?
Phillippe Lord: Yes. I think we’re still catching up, Alan, on having the inventory we want by community. We’re getting there, but we like to have the third of our homes, finished the third of our homes that are ready to move into the next 30, 60 days and then a third of our homes that are ready to move in 90 days or 120 days. So we’re not there on a community-by-community basis. Certain communities maybe have more, but they’re seeing higher absorptions. So this is really about us catching up and getting to where we want to be, especially for the spring. We’re not there yet. I think as we — cycle times have contracted, we’re getting a lot closer. And so you’re going to start to see that really kind of marry up — starts marrying up with sales as we move into 2024. But I feel like we still have some catching up to do right now.
Alan Ratner: Got it. Okay. I appreciate that. Second, on the rate buydown dynamic, I’m curious, when you think about the incentives you’re offering, would you characterize it more as something that is needed to get perhaps a buyer off the fence and convince them to buy one of your homes versus a resell home? Or is the rate buydown actually necessary to get that buyer to qualify, meaning they perhaps can’t qualify at an 8% rate and they need a 6% or something in the — to actually qualify for the mortgage?
Phillippe Lord: Yes, Alan. I mean I hate to phone in the answer here, but we’re a community-by-community business. So, I would say in certain markets and communities, we need those rate locks to achieve our for net sales per month, and that’s to get folks qualified. In other communities, it’s more of just in replacement of nicer cabinets or a move-in-ready appliance package or a little bit of a base price discount. So, everyone is using it differently. We need it differently depending on the market, the community So, it’s hard to answer that question in generalities. But obviously, as rates continue to increase, we’re using more of it to get people qualified than we were maybe two quarters ago. But it’s still very much community-by-community and buyer-by-buyer.
Hilla Sferruzza: The only thing I would add is, in all communities, it’s a marketing tool, right? So, it’s critical — the customer is looking for that. So, it’s critical to advertise that to get them in the door. Once they’re there, we can walk through the benefits of one financing solution versus another and kind of understand what their need is. But I think it’s critical today to have that as an advertising solution.
Phillippe Lord: Yes. But just like when I describe the markets in the West, we probably need more of those rate locks in the West to qualify people than we do in Texas, for example, or Florida or the South.
Alan Ratner: Got it. Appreciate it, guys.
Phillippe Lord: Yes, thank you.
Operator: Our next question comes from Carl Reichardt with BTIG. Please go ahead.
Carl Reichardt: Thanks everybody. Hilla, you talked about sort of thinking about land banking option on a go-forward basis is something you might utilize more. And so what’s changed there? I mean the balance sheet is as good a shape as it has been. We’ve been self-developing for a long time. And so I’m just sort of interested in your thinking on making that switch over time.
Hilla Sferruzza: I would say maybe the two big changes would be our expectation for future growth, I think is fairly robust. So, we want to make sure we’re still going to continue to use our own balance sheet, of course, but we can supplement that in corn an even faster pace if we’re also using third-party financing. The other item that we mentioned in our prepared remarks is the stabilization of the market. The extended time lines and cost bust on land development over the last couple of years has made the math to the model on land banking difficult, right? You’re paying carry costs and the timelines are extending and it’s outside of your control. So, we’re really kind of pausing and waiting for the market conditions to stabilize, so that we can understand the actual burden that attaches to every lot from a land banking development perspective.
