Mike Dahl: Good morning. Thanks for taking my questions. Doug, just a follow-up on kind of the LTV cash buyer dynamic. One of the interesting things about this recent rise in rates as I think – at various points over the last year, the conventional 30-year had gone above 7%, but you look at arms or jumbos or FHA VA and they had kind of lived more in the like 6%, 6.5% range. Now all rates have kind of surpassed 7%, the spreads have all compressed. Can you just talk a little about – have you seen that like as people are putting that little extra money down, are you seeing people shift out of out of jumbos into conventionals, or any shifts and own products? And part two is, given there’s not as much hypothetical arm between jumping around products today. Have you started to lean back into your buy downs over the last month as rates have risen?
Martin Connor: Mike, I’ll take a shot at the first half of that in terms of what we have seen buyers do. Often when rates rise, we would see them gravitate to adjustable rates. And we haven’t seen that, because it hasn’t been attractive. The spread between adjustable and fixed just has not been substantial enough to motivate somebody to go in that direction. We also just came through a period where jumbos were less expensive than conventionals. And so in ’20, ’21, ’22, we saw buyers borrow more so that you could get to the lower jumbo rate. Right now, we’re seeing the inverse of that. We are seeing them increase their down payments and reduce what they’re borrowing so they can stay in conventional to a greater extent.
Douglas Yearley: With respect to buy downs and whether we’ve accelerated that lately, the answer is no. The buydown program doesn’t work for the build-to-order business because you can’t buy down a rate that’s 12, 14 months out. But it does work well as a lead marketing headline for the spec inventory that can deliver over a four-month period of time. So we may advertise for spec inventory that will take a 7.5% rate down to 5.5%. But the cost of that, and let’s just say it’s maybe $40,000 or $45,000 on the $1 million home the total sales, it doesn’t capture the buyer’s attention as much as them deciding or can I use that 445,000 and by finishes in the house or do something that is long term. And I think the reason for that is they don’t look at the 7.5% rate of the 30-year rate they’re stuck with.
They look at it as a shorter-term time frame where they’re going to refi out of it when the rate comes down. And so why use my incentive to buy a rate down that I’m not going to have for a long period of time. That doesn’t mean some don’t take advantage of the buy down, but it’s not like all of our spec inventory is being sold through the buy-down program, and that’s where all the incentive is going. It’s a marketing headline. It grabs attention. It starts conversation. Some take it, but more flip the dollar value of the buy down into upgrades or features within the home.
Mike Dahl: Yes, that’s interesting. Thanks. And maybe that’s also a point of differentiation for your wealthier buyer. The second question is…
Douglas Yearley: Right, because it’s not a straight affordability issue where they have to have the 4.5% rate to get approved, it’s more discretionary as to where do they want to spend the incentive.
Mike Dahl: Yes, yes, yes. Okay. Second question, and maybe, Marty, this is just a technicality or a clarification on the earnings guide, $11.50 at the low end. If I bridge your operating metrics and account for the year-to-date charges, I think you’d get to a number that’s still maybe $0.30 give or take, north of that. So is that really just hedging for – you’re saying your guys including the three buildings that you anticipate to close is as simple as you’re hedging in case those don’t close in the fourth quarter? Or is there something else in the core operating metrics where you think there could be some give or take.
Martin Connor: Well, I think we’re trying to get to some rounded numbers, $11.50 to $12, is pretty rounded. I think there’s some caution in there if something doesn’t go according to plan. We don’t project any impairments. We don’t expect any, but there may be some. And so it’s as simple as that, Mike. I don’t think – I think you’re reading much more into it than you should.
Mike Dahl: That’s helpful. Thanks.
Douglas Yearley: You’re welcome.
Operator: The next question comes from Ken Zener with Seaport Research. Please go ahead.
Ken Zener: Good morning, everybody.
Douglas Yearley: Good morning, Ken. How’re you?
Ken Zener: I’m doing well. Appreciate all your comments. I wonder if you could quantify – you’ve mentioned base pricing. Could you give us a sense this quarter, last quarter versus a longer-term trend. What’s your kind of base price and how much of options traditionally been a percent of your sales. And the reason I’m asking that is, obviously, with this liquidity from your buyers, options historically have a higher margin profile. So I’m trying to sense if you’re seeing greater share of options and what the impact is historically on your gross margins? If you could give us some context. Is that my first question.
Douglas Yearley: Sure. Long-term average upgrades, and that includes the lot premium, right. It’s 21%. Q3, it was 27%, $236,000. That’s counterintuitive, right, with rates going up, do you think maybe people are moving towards smaller homes, more affordable homes, not the case. And that goes right to the wealth of our clients and how we do it. This is their dream move. And if they can afford it, they’re going to reach. And so I’m not telling you that trend is going to continue. I don’t know, but those are the numbers. 21% long-term average upgrades, Q3 27%. And yes, the margin coming out of our design studios where we send the client to pick all their beautiful finishes is higher than the company’s gross margin.
Martin Connor: And the lot premium is 100% gross margin.
Douglas Yearley: And the lot premium is…
Ken Zener: Correct. What is the – well, I guess, following up on that, what is the split between land and the physical upgrades, if you would? And then the second question I really want to address is you talked about 2,200 presale units last quarter. I don’t know if you guys are updating us on inventory units yet. That would be useful. But could you maybe talk about where we are in terms of those presales starts as well as that land upgrade mix, if you could. Thank you.
