Hilla Sferruzza: Yeah. We don’t give numbers out in that way. We actually market spec inventory. So the components are not really visible externally. It’s not something that we give out, although I think we mentioned that the decline in margin guidance between Q3 and Q4, that’s primarily the incremental incentives that we’re expecting. So you can see what the change is going to be quarter-over-quarter, but we don’t provide details.
Jay McCanless: Okay. Great. Thank you. Appreciate it.
Hilla Sferruzza: Thank you.
Phillippe Lord: Thank you.
Operator: Our next question comes from Alex Barron with Housing Research Center. Please state your question.
Alex Barron: Yeah. Thank you. I was hoping you guys could provide some type of statistics on what your average client looks like in terms of average household income, average FICO, average down payment, those types of things?
Hilla Sferruzza: Yeah. So we had a little information in the prepared remarks. Our average customer is right around the seven — so maybe I should pocket it by saying not too much has changed over the last decade. Honestly, we track this monthly for the last decade and not too much has changed. We’re right around the 740 FICO hovering right above, right below in any given month. LTV is in the mid-80s DTI, 40, 41, 42, depending on if it’s an entry level or first time move up, that’s kind of held steady. So we’re fairly comfortable with the credit profile of our customers. You can definitely afford the house that they’re getting into.
Alex Barron: Okay. What about the average income?
Hilla Sferruzza: I don’t believe we provide that. We’ll go back and check to see if that’s in the stats that we provide. But if not, that’s not a new data metric we’re going to provide on the call, because there’s no context for historical baselines.
Alex Barron: Okay. How about — in terms of your incentives, what percentage of ASP do they represent today either in closing, or in backlog versus, say, a quarter or two ago?
Hilla Sferruzza: So I think we just answered this question. We don’t provide information on incentives as either a percentage or a dollar amount, since our homes are listed as a completed home, we sell spec inventory. So the market price is an all-in price that we don’t want to start to break those components out and provide a competitive disadvantage to ourselves. But we will say that 80% to 85% of our customers are using some sort of financing incentives. So it’s a fairly material amount. And we expect that trend to continue. And as we’ve mentioned, we expect the Q4 utilization of the more expensive, the more costly financing incentives to increase, which represents the change in the margin from the 26.7% that we earned in Q3 to the 25% to 26% guidance that we gave to Q4, that’s primarily a reflection of incremental incentive usage.
Alex Barron: Got it. Okay. Thanks a lot.
Hilla Sferruzza: Thank you.
Operator: Our next question comes from Jade Rahmani with KBW. Please state your question.
Jade Rahmani: Hi. Just a follow-up on the mortgage buydown question. Is 200 basis points the limit in terms of benefit you can pass on to customers through that? And is full term buydown, the most common option that buyers are preferring?
Hilla Sferruzza: It depends on the buyer, to be honest. I’ll take your second question first. A lot of folks are looking for assistance on the entire payment for the third year. That is the most common type of financing incentives, but a lot of folks either 3-2-1 or a 2-1, buy down, right? They’re willing to take the extra incentive money and apply it to something else. They just need assistance in this first year or two. And they’re comfortable with that. We’re also heavily marketing arms, where you can get to with the 76 arm is pretty impressive. Average American doesn’t stay in their home more than seven years, so we’re trying to increase the education on that front, and we’re seeing some traction there. I’m sorry I forgot the first part of the question.
Jade Rahmani: 200 basis points.
Hilla Sferruzza: Oh, 200 basis points, it’s actually 300 basis points, but I think a couple of our peers have mentioned this on their calls as well. That is if you are doing an incentive for that buyer for that home, the forward commitment that most of the large builders are purchasing are actually outside of that limit. So there’s an opportunity to provide an incentive that’s in excess of that 300bps.
Phillippe Lord: Which is another advantage over the existing home market which they had that governor.
Jade Rahmani: So the incremental margin impact that you mentioned going from the $267 million to the $25 million on the 20 basis points. Does that reflect roughly 300 basis points of impact?
Hilla Sferruzza: No, that’s just incremental change from Q3 to Q4, right? That’s the incremental change of usage of financing incentives or the more costly financing incentives or more folks using them. So I think we need to maybe not focus on the $300 million everyone is exceeding the 300. There’s no rate locks that you’re buying that’s attractive to a buyer at 300. That’s why the builders are doing the forward commitment. So that amount is in excess of 300. But as we mentioned, less than 20% of our closings in Q3 actually use that percentage. So I think that we should think of it more broadly than the 300 that’s available.
Jade Rahmani: Got it. Thanks very much.
Hilla Sferruzza: Of course. Thanks.
Operator: Our next question comes from Ken Zener with Seaport Research Partners. Please state your question.
Ken Zener : I appreciate the details on the incentive structure. It is kind of confusing, but it seems like builders one special soft there. A couple of questions here. First, am I getting the price hikes, I think I’m doing the math right? The ASP is going down in the fourth quarter, correct? For your guidance?
Phillippe Lord: It seems
Ken Zener : Yes. And that’s fine. I mean is there — I guess, I haven’t heard you guys discuss that much in terms of the regional? Or did you just reset? Because obviously, incentives has something to do with the gross price. Can you talk to that a little bit before my — and then I have one more question.
Phillippe Lord: Yes. As I said in my opening comments and as well as the first question, it’s largely mix. We’re not cutting our prices in today’s market. So there’s some incentives here and there. We’re doing the rate locks, as we said. But primarily, what’s driving the ASP decline in Q4 over Q3 is geographical mix. We’re getting a lot more closings out of some of our entry-level communities across the country.
Ken Zener : It seems like a big mix shift quarter-to-quarter. Is there — was it a big closeout related — I mean, it’s right — I mean, quarter-to-quarter only, it seems like a big value shift?
Phillippe Lord: We can certainly get you more details if you’d like, but…
