If I think about the fourth quarter everyone – we saw a lot of movement in interest rates as you know. October was okay. November was pretty rough. December was our best December in the company’s history. And I really credit the diversity of the portfolio that allows us to do that.
Carl Reichardt: Okay. Thank you, Sheryl. And then you also talked about a pivot in how you’re thinking about land and the off-balance sheet side. And if I operate under the assumption that JVs are kind of tough to structure, there are not that many seller financing deals the default for more off-balance sheet is the land banking business. Can you talk a little bit about the availability of land bank capital, your plans to focus more on that if they exist? And then what you’re seeing in terms of the cost of that capital right now? Thanks.
Sheryl Palmer: You want to take that?
Erik Heuser: Sure. Hi, Carl, it’s Erik. Yeah. I would say that we have all of those arrows in the quiver and we do employ all of them. The joint ventures are great. And when we’ve got alignment with a building partner, and being able to develop that off-balance sheet pull the lots in just-in-time to the homebuilding business. It’s great. And we do have eight of those across the markets. And so they are meaningful, as you think about percent control. When it comes to the seller financing that’s always the first ask of the divisions have we looked to the seller for financing because that typically is the least expensive and we do a fair amount of that. To your point on land banking, I would say land banking is always available.
I would say the cost of — the comparison of cost relative to where we did a relatively large slug of the vehicle that we negotiated is up from there. We expect that to moderate down especially as kind of the perceived risk in the interest rate environment kind of normalize plato and kind of comes to a place that we find attractive again. And so the discussions are always being held. We haven’t negotiated any real recent ones. But I would say discussions are ongoing. And what we look for Carl is for it to come in line with kind of our weighted average cost of capital. That’s really where it starts becoming attractive for us.
Sheryl Palmer: And Erik, if you were to look back to 18 months ago when we did our first big deal on what land banking REITs are doing today, I mean I think there’s easily a 300 basis points.
Erik Heuser: Yeah to be pointing to your question Carl, I would say it’s 300 to 350 basis points relative as I compare to kind of where we originally negotiated our deal.
Carl Reichardt: Okay. I appreciate that. Thank you for the detail. Thanks, Sheryl.
Sheryl Palmer: Thank you.
Operator: Thank you. The next question comes from Matthew Bouley from Barclays. Please go ahead, Matthew.
Elizabeth Langan: Good morning. You have Elizabeth Langan on for Matt today. And I just wanted to kick it off pricing. You noted that you were raising prices in nearly 60% of communities. Where are you seeing those price increases? And if this trend kind of continues throughout the year, is that something that’s contemplated since the high end of your guide? Or would this lend itself to upside on the side of margins?
Curt VanHyfte: Yeah. Hi, there. We did have some pricing power in Q4 as you mentioned. We did — we were able to raise our pricing by about an average in about 60% of our communities. And that is embedded into our guide, but any additional pricing power would continue to be upside. Again, and then depending on what interest rates do et cetera, that all plays into what the margin could have an impact on the margins.
Sheryl Palmer: And I’d say the good news if you agree Curt is — Elizabeth is, even though we saw that pricing opportunity in 60%, it was modest. And I think that’s a much healthier place. And what we would hope to see as we move through 2024, is continued modest pricing opportunity as well as some continued reduction discounts. Now it’s early in the year. So we’re going to have to play that out. Obviously, we’ve seen the volatility that’s hit the market. Certainly, yesterday, we saw it a couple of weeks ago with the single largest lift in interest rates that we’ve seen in the year. But all-in-all, we’re in a much better place than we were a year ago. So we expect to continue to see some opportunity all other things being equal as we move into the year.
Elizabeth Langan : Okay. Thank you. That’s helpful. And I guess kind of continuing on that, how are you balancing that with your use of incentives? I guess, obviously, when there’s a pricing opportunity you’re going to take it, but does that mean that you’re typically kind of dialing back on your incentives more or keeping that pretty stable?
Sheryl Palmer: Yes. I think, we’ve been very fortunate, and we’ve gotten pretty good at this navigating this environment for — it seems like nearly two years, and I think our tools have gotten better. And our appreciation of being able to personalize, I think, Curt spoke to this in his prepared remarks, being able to personalize each incentive to the specific buyers’ needs. We certainly are in a market that we can’t kind of paint any community or any market with a single brush. So it allows us to serve the customer in the best way for them, and at the same time protect the margin, wherever — however and wherever we can. It’s interesting as incent as interest rates started kind of pulling back, and we saw last — over the last few weeks, we saw rates drop as low as kind of the mid-6s.
I started to see in some markets kind of us going back, I mean, us being the industry to some of the old tablets and doing incentives off of options or lot premiums or discounting house where in fact we’ve stayed very, very focused on using finance as the best sales sold to give our consumers the best monthly rate. That allows us to pull back incentives one house at a time. We are early in the year. We have seen some volatility. Once again, I think, the good news is if I look at what those forward commitments were costing many months ago versus where we are today, it’s significantly better even with the blip that we’ve seen this week, I still would expect over time. Maybe not as quick as the market it assumes seeing side cuts in March or May.
