Alan Ratner: And I guess if I could sneak one in on that, I mean it’s hard for us to conceptualize what impact that has on your business, and obviously it’s concentrated in a handful of markets right now, but are there certain kind of metrics that you can share with us, whether it’s cycle times or costs, margin, et cetera, that you can kind of demonstrate on a case study basis, how that’s contributing to your business right now?
Ryan Marshall: Yes, Alan, so that’s – we haven’t given a bunch of guidance on that just because it is concentrated into a couple of markets, and we don’t feel it’s appropriate to extrapolate the entire enterprise yet. As we get further down the path, we’ll share more. Conceptually, it’s exactly what you highlighted. We’re getting cycle time improvements. We’re getting better quality, and there are some raw material cost savings that we believe we’re getting as well.
Alan Ratner: I appreciate that. Thanks a lot.
Operator: Our next question comes from the line of Susan Maklari with Goldman Sachs. Please go ahead.
Susan Maklari: Thank you. Good morning, everyone, and thanks for fitting me in. My first question is just around the specs. You mentioned that you had about 44%, I think of your production that’s in spec. As you think about the year and the way that the demand may come together, any thoughts on where that may move, or how you’re thinking about it longer term?
Ryan Marshall: Yes, Susan, I wouldn’t anticipate a massive change from the percentage. We’re probably on the higher end of the range that we’ll have in spec right now. Specific to the fourth quarter, we put more spec starts in the ground than what we sold, and that was intentional. We wanted to have some additional inventory going into the spring selling season, which we have. So, as we move throughout the year, probably right in line with where we’re at or a tad lower.
Susan Maklari: Okay, that’s helpful. And then when we think generally about the potential for rates to come down this year, and that possibly driving some increase on the existing home side of the market, any thoughts on what the implications of that could be, especially perhaps on the move-up and the active adult parts of the businesses, and any initiatives you have relative to that?
Ryan Marshall: Yes, Susan, with the rate cuts that are forecasted, I don’t see it being at a level that’s going to unleash a tidal wave of resale inventory. So, is it better than where we’re at today? Certainly. Will that start to free up some resale inventory? I think so. And I think that’s probably helpful against the backdrop of, we continue to be under-supplied in the country. So, on balance, I don’t think it has much impact at all on what we’re projecting for our business in 2024.
Susan Maklari: Okay. Thanks for the color and good luck.
Operator: Our final question comes from the line of Rafe Jadrosich with Bank of America, where we’ve reached the time allotment for this morning’s call. Please go ahead.
Rafe Jadrosich: Great. Thank you, and thanks for taking my questions. Can you – in terms of the additional 30 days of build cycle improvement you’re expecting for 2024, can you talk about what the build cycles are in homes that you’re starting today? Like, are you already at that 100-day level, and is that improvement embedded in your cashflow guide?
Ryan Marshall: Yes, Rafe, it’s a fair question. The homes that we’re starting today will deliver in kind of late – so homes we’re starting today will deliver in Q2 basically. So, no, we’re not at the 100 days yet. Now, that being said, there are some markets and some communities where we’re at the 100 days, and in fact, we were at the 100 days last year. When you blend it all together, we think it’ll be Q4 before we’re at the 100 days that we’ve highlighted as our goal.
Bob O’Shaughnessy: And Rafe, our guide does factor in what we see in terms of cycle times during the year, the cash flow guide, to your question.
Rafe Jadrosich: Got. Thank you. That’s helpful. And then you gave really helpful color in terms of the land inflation you’re expecting in your gross margin for 2024, and you have the land you have the land that you need through 2025. On the land that you are contracting today, what are you seeing in terms of inflation? Is it at a similar level or are you actually seeing that come down? And then can you kind of help us understand the difference between development cost inflation relative to what you’re seeing for raw land?
Ryan Marshall: Yes, so – sorry, I forgot the first part of the question.
Rafe Jadrosich: You spoke about the land inflation in the …
Ryan Marshall: Oh, I think I got it. I’m sorry. Yes, we – listen, it’s interesting. Land prices don’t come down very often. They’re sticky. And we’ve seen, and we’ve highlighted sort of sequential increases in lot costs. I would tell you that the land we’re seeing today is consistent with that. Prices are pretty robust and it’s a pretty competitive landscape out there. We underwrite to return. And so, it’s – we look to see, can we get return out of that. So, I think no change honestly in the land market. In terms of the inflationary aspect, what we are seeing is that that labor constraint influences the development of land, just like it does building of houses. And with general cost inflation that we were seeing last year in particular, it was influencing the spends of type.
Everything that we do to do the development of the communities was running pretty hot too. So, again, we’ve highlighted, we think it’s going to be a little bit more expensive in terms of our lot increase this year for 2024. And again, I think that just reflects all the activity that was going on and some of the cost inflation that we saw in 2023 feeding into our lots this year in 2024. The good news is, the vertical, we’re seeing a pretty benign in that market, whereas that had been running pretty hot last year obviously. So, the slowdown in inflation, we feel it now in the house. Hopefully, we’ll feel that a little bit later and land. It would be an opportunity for us, for sure.
Rafe Jadrosich: Great. Thank you. Appreciate all the color.
Operator: I would now like to turn the call over to Jim Zeumer for closing remarks.
Jim Zeumer: Appreciate everybody’s time this morning. We’ll certainly be available over the rest of the day if you have any additional questions. Otherwise, we’ll look forward to speaking with you on our next earnings call.
Operator: This concludes today’s call. You may now disconnect.
