Ken Zener: Right, and so I guess–you know, what we talked about since last quarter was options are obviously higher margin, one can imply that’s accounting for historically that 300 or 400 basis point lift of gross margins versus peers, so as that option mix, can you kind of relate–you know, what is the cost of or what was the drag specifically for all these mortgage rate buy-downs? You know, 5.75% versus the 8% now, what is the net impact on your gross margin? I realize it’s part of incentives, but if you could quantify that. Then what is the actual distribution of that? It seems like an active adult paying cash doesn’t need it, so is that largely occurring in the first-time buyer? I heard the 80%, but I’m just trying to understand that spread of usage relative to these options, which are structurally a good tailwind for you.
That’s one, and then second, your mention of finished lots, very interesting because you’re return focused, so I think the street’s too focused on margin, not focused enough on turns. Did you have, or what percent of closings in the quarter came from finished lots, and what’s the margin impact of that as well? I appreciate you answering those two sets of questions.
Robert O’Shaughnessy: Ken, there’s a lot there. Let me start with–I had highlighted this before, our incentive load is about 6%, $35,000, so that would tell you 6.3%, something like that, and again I think we’ve highlighted the majority of that incentive is rate buy-down for financing support, so I think that’s the answer to your first question. I apologize -your second question was, I think what percentage of our–
Ken Zener: Right, you were talking returns, right? You’re a return-based company, even though the street and you guys focus a lot on margins. To the extent the first-time buyer, more spec, finished lots so you get better terms, you guys mentioned finished lots, I believe for the first time, so what is the impact of the finished lots? Are you closing finished lots? What type of margin impact is that?
Ryan Marshall: Ken, it’s Ryan, I’ll jump in on that. We haven’t sliced the bologna quite that thin, and I won’t attempt to do it on this call. We are a return-focused company. There is no change there. I think we’ve been the purveyors of the message, we don’t focus on margin, it’s a component of the overall operating model. We’re focused on return, and depending on the number of units we sell in a particular community and how quickly you turn the asset, if you do that fast enough, then it can offset and you can allow for lower gross margins. If you’re getting a lot just in time and somebody else is developing it and carrying it, and we can build in the hundred days that we’re talking about, it allows us to run a high returning business at a lower margin. That’s not a new concept, that’s exactly what we do, and it’s exactly what we’ll continue to do.
Operator: As a reminder, we ask that you please limit yourself to one question and one follow-up question. We will take our next question from John Lovallo with UBS. Your line is open.
John Lovallo: Good morning guys. Thank you for taking my questions. The first one, so rates at 8% today, you guys are buying down to 5.75%. Can you just remind us, last quarter when rates were closer to 7%, what level you were buying down to?
Ryan Marshall: Yes John, we were–I think the lowest we were was 5%, 5.25% at a national level. We had some specific markets that may have been sub-5% at 4.99%, but basically as you’ve seen the headline rate move from 7.5% to 8%, you’ve seen our promotional rate move up by that same 50 basis points.
John Lovallo: Okay, and you would anticipate probably taking that same strategy as we move forward, if rates were to move up?
Ryan Marshall: I think generally, that’s a good rule of thumb. I mean, there is–I think practically speaking, there’s a limit to how much money you can throw at the rate relative to what the headline number is.
John Lovallo: Makes sense, and then the second question is just on community count, how you’re thinking about that through the remainder of this year, and maybe any initial thoughts as we move into next year.
Robert O’Shaughnessy: Yes, I think very consistent with what we’ve said, we think we’ll be up 5% to 10% over fourth quarter of last year.
Ryan Marshall: And then we haven’t given anything for ’24 yet, John, but as we’ve said in the past, you can see the capital that we’ve spent, for the land that we’ve spent this year, a pretty good indicator of what community count will be in the future, or you can use as a proxy for what community count can turn into in the future.
John Lovallo: Got it, thank you guys.
Operator: We will take our next question from Mike Dahl with RBC Capital Markets. Your line is open.
Michael Dahl: Morning, thanks for taking my questions. Ryan, just to pick up on one of your last responses in terms of the practical limit on how much you can throw at the rate buy-down. I mean, we’ve heard different things from different builders, depending on whether you’re doing fewer buy-downs versus the forward purchase commitments which I think you alluded to earlier, and kind of what is and isn’t considered seller contributions, can you maybe elaborate a little bit more on the details of how you’re executing in the case of going down to 5.75%, how you’re executing that? Is it–like, how much is allocated towards the forward purchase commitment versus the pure points, and do you consider the purchase commitments and the cost of that as part of your seller contributions?
Ryan Marshall: Yes, so I don’t want to give away all of our trade secrets on that, but suffice it to say there are different rules based on who is–depending on which government agency rules you’re using for that mortgage program. For the upfront fees that we’re paying on a forward commitment, because those are done prior to having a home under contract, those fees do not count toward seller contribution; but there are additional incentives that have to be applied to the deal–that do have to be applied to the deal once the home’s under contract, those do certainly count towards the seller contribution, so to get to 5.75%, you’ve got some fees on the front end, you’ve got some fees on the back end. We do look at them in the aggregate, and those are the numbers that you’re hearing Bob talk about.
Michael Dahl: Okay, that’s helpful. Then my follow-up is if we think about the movement in rates, I don’t know if you’ve looked at it this way, and I’ll ask it in a historical context year-to-date, if you look at your year-to-date orders or closings, maybe let’s focus on closings, have you run an analysis of how many of those buyers just wouldn’t have qualified at today’s rates versus the rates that you were able to get them year-to-date?
Ryan Marshall: No, we haven’t run that analysis, no. I would highlight that no matter the rate that we’re offering, we qualify the buyer on the 30-year, so a lot of the incentives that we’ve been doing have been 30-year fixed rate, so that is the rate we’re qualifying, but in the case that you do a temporary buy-down, the buyer is qualified at what the permanent 30-year rate will be. I think everybody knows that, but I think it’s worth highlighting because we don’t–none of us wants to see the industry back in a situation that we were in, in 2008.
