Martin Connor : I think if we need to point to one offsetting factor, it’s the lumber.
Douglas Yearley : We are feeling — I talked about building costs beginning to come down and cycle times beginning to come down. The front-end trades, the excavator, the foundation and concrete, the framer, window installation, siding, roofing, rough mechanical, electric plumbing, HVAC, and everything you do before you insulate a home and button it up with drywall, those front-end trades are now feeling less action as there are less starts. And they’re the ones coming forward now saying, “Hey, we have some capacity.” And as soon as you hear the capacity word as a builder, you say, great, and here’s the new price. And so there’s negotiation occurring on the front end, and that will naturally move through to the back end as those finishing trades also feel less activity.
Alan Ratner : Got it. That makes sense. Second question, this is just more of a strategic question or thought. You kind of maybe alluded to this a little bit, Doug. But I think it makes a lot of sense being willing to forego some sales in the near term with the backlog you have and kind of the seasonally slower time of the year. Just given your build-to-order model, though, how long are you willing to forgo sales or kind of give up some market share, recognizing it seems like you would be setting yourself up for a pretty big air pocket in ’24 unless you’re willing to meaningfully increase the mix of specs in your business in ’24. Because if your build cycle, even if it improves to 12 months, you’re not going to have an opportunity for a lot of sales unless you see a demand improvement through in the spring of next year.
So how long are you willing to kind of give up that market share in the near term and maybe not be as aggressive on pricing? Or is the answer to that spec ship that you are willing to take higher?
Douglas Yearley : Great question. Our head is not in the sand. I mentioned that we’re very focused strategically on ’24, and we will pull the levers necessary to have homes ready to be delivered in ’24, which means we will increase spec build starting in the new year. That will be ready in early mid, end of ’24. And it’s been interesting, the last couple of quarters, while we’re about 75% build-to-order, 25% spec, and the spec business for us has been better, it’s been higher margin. The client, one of the reasons is they can lock a rate for a quicker delivery, and they want a little more certainty around the finances associated with buying the home. So our spec business has done well, and we’ve had a bit better pricing power, which gives us confidence.
We’re not going 50-50 and maybe we get to 30-70. We’ll have to see, but it’s going to be based on certain markets and how those markets are doing and where the elasticity of demand has been. So we will continue to keep a close eye on market conditions and adapt accordingly. And if that means not just building more spec to set up those deliveries, but being a bit more aggressive on incentives, we’re going to do that. We’re not going to lose market share. We have the land to grow this company. We already mentioned 10% community count growth coming this year on the land we control, we have strategically delayed those openings, as I mentioned, so that they hit in a better part of the year, which is the spring season, and they hit, we’re actively building models everywhere and holding off openings where in COVID, we would have opened them.
We would have had what we call opening, where it’s hard to get on the job site you got to work hard to buy a home. We’re going to — you’re going to — this is going to be Ritz-Carlton white glove, everything perfect, and we’re going to do it at the right time of the year. So there’s a lot of moving parts for us, but because of the landholdings and the ability to grow community count and our flexibility on both spec build and pricing to market where appropriate, I’m confident our strategy is in place to have a really good ’24.
Operator: Our next question comes from Truman Patterson from Wolfe Research.
Paul Przybylski: It’s actually Paul Przybylski. I appreciate you guys giving the order incentives at 8%. I was wondering if you could combine that with your traditional market color and where incentives may be higher or lower than that average? And then also, if you could give us any color on your various business segments and how orders performed in the quarter.
