Martin Connor: Greg. So I think we have approximately 2,400 specs under construction compared to the 2,200 you mentioned, and we have around 400 at CO or beyond compared to 350 last quarter last quarter. In terms of a breakdown of the option premium versus things in the house – what have we got there? You say in…
Douglas Yearley: Yes, Ken. So the base house prices for the quarter was call it, high $870,000. So the lot premium this quarter, again, at 100% gross margin was almost $60,000 and then the option upgrades were around 175,000. Now that will include both the design studio and structural options.
Ken Zener: Thanks.
Operator: The next question comes from Alex Barron with Housing Research Center. Please go ahead.
Alex Barron: Yes. Thanks, everybody. I was hoping we could focus a little bit on your ASP trends, especially in orders. I’m guessing, July quarter a year ago was a bit distorted maybe by cancellations? Maybe not. Maybe you can clarify that. But clearly, the trend has gone from the $1.1 million towards $960,000. I’m just trying to understand that better. Is that due to more specs that are lower priced? Are you guys building smaller homes? Is it a more intentional thing that’s going to continue? Or do you feel like the prices are here to stay at that level of the orders this quarter. Just some better understanding would be helpful.
Martin Connor: It’s really a function of mix, Alex. I think we talked about the success we’ve had in the Mountain region and in the South where our prices are generally lower than they are in California or in the North. And so as the business has shifted to those geographies and as we’ve increased the affordable luxury line as a percentage of total, the average price mathematically comes down. It is not a function of building house type A, this year at 4,000 square feet and last year, it was 4,200 square feet. It’s really just a function of the mix shift from a geography perspective as well as a market segment perspective.
Alex Barron: Okay. So all else being equal, you don’t necessarily see these trends taking the price further down necessarily or possibly yes.
Douglas Yearley: I think they could modestly go lower. But again, it can be very lumpy quarter-to-quarter based on what is delivering. We are now north of 40% affordable luxury. And I think we’ve said we’re kind of – we’re comfortable with affordable luxury getting as high as half of our business. And we also have to be careful how we define affordable luxury now because it is – it’s gone up fairly dramatically in price through the COVID years and it’s a very gray area. We don’t market it to the public as affordable luxury. It’s just an internal term to help us with how we prepare for marketing, how fancy we decorate the model homes and build the entrance features and also, I think it helps the Street in understanding this move we made in price.
But we’re close to where I think we want to be long term in terms of the mix between the affordable luxury, the true luxury the empty nester move down, et cetera. So there could be some modest drop in price, but I think you’ve seen most of it already.
Operator: The next question comes from John Lovallo with UBS. Please go ahead.
John Lovallo: Good morning, guys. Thanks for taking my question. I guess the first one is, that seasonality has certainly been a little bit tricky over the past few quarters, and you guys did better-than-normal seasonality in the most recent quarter. Just curious how you’re thinking about absorption as we move into the fourth quarter, given what you’re seeing out there in the market today.
Douglas Yearley: Yes. It feels right now, John, like it’s trending very similar to Q3. And I think our comments around the three weeks of August helped explain that. We’re running at a pace right now of about 24 homes sold per year per community. Last year was 25 homes sold per year per community. So it’s relatively flat, and that’s what we’re projecting. The 2010 to 2019 time frame, again, pre-COVID, we tracked at about 22 sales per community per year. So we’re modestly call it, 10% or so above that. But that’s what we anticipate for the fourth quarter.
John Lovallo: Okay. That’s helpful. And then you guys mentioned cycle times improving. Just wondering if you could help us kind of quantify where they are today maybe versus last quarter, maybe pre-COVID. And then how much of that improvement is getting better on the to-be-built side versus just offering more spec?
Douglas Yearley: Cycle times are coming down slowly. We’re picking up a couple of weeks. For the next home sold a range is about 10 to 11 months. I think the exact number, I think, is 315 days is what we project when you average out the entire company. That’s obviously down dramatically from the COVID years and it’s similar to what we saw pre-COVID. But we are more efficient. There’s no question. We changed our operating model in the field. and we’re enjoying those efficiencies. The spec build as a larger percentage of our business is certainly helping because we can get to how started without the customer making all the selections. We can build the house without the customer visiting every Sunday afternoon and coming back at us with their own little punch list and how those are less complicated because we’re not loading them up as much as some of our clients do when they run through the design studio.
So that is certainly helping. We have less SKUs. We have optimized all of our plans. We have less homes that we offer, and all of that is contributing. And I do feel like it’s just the beginning, particularly with almost half our business being affordable luxury, which means smaller, simpler homes and this operations focus on becoming a better production builder there’s still room to go. But I am encouraged that we’re down a few weeks, and it’s trending in an even better direction.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Douglas Yearley: Thank you, Betsy. Thank you, everyone. We appreciate all your great questions and all of your interest. We’re always here. As you know, to answer any additional questions off-line. I hope everyone had a wonderful summer although I believe it’s over. And we’ll see you through the fall and back on a call in December. So thanks again. Take care.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
