Taylor Morrison Home Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 23, 2025

Key Takeaways

  • Positive Sentiment: Taylor Morrison delivered strong Q2 results with 3,340 home closings at an average price of $589,000, generating $2 billion in revenue and a 23% adjusted home closings gross margin.
  • Negative Sentiment: A record‐high 71% share of spec home sales led to margin pressure, as deeper incentives on inventory are expected to push Q3 and Q4 home closings gross margins down toward 22%.
  • Positive Sentiment: The company controls 85,051 homebuilding lots (6.4 years of supply) with 60% via options and finished Q2 with $1.1 billion in liquidity and a 22.9% net homebuilding debt‐to‐capitalization ratio.
  • Positive Sentiment: Taylor Morrison repurchased $100 million of shares in Q2 and targets at least $350 million more in 2025, bringing total buybacks since 2015 to ~$2 billion to enhance shareholder returns.
  • Positive Sentiment: The upscale Esplanade active‐adult brand continues expanding, breaking ground on a new Summerlin community that already boasts a robust interest list ahead of its launch.
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Earnings Conference Call
Taylor Morrison Home Q2 2025
00:00 / 00:00

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Operator

Ladies and gentlemen, the Taylor Morrison Q2 twenty twenty five Earnings Webcast and Conference Call will begin shortly with your host, Mackenzie Aron. We appreciate your patience and ask to prepare your session today. During the call, we encourage participants to raise any questions they may have. We will begin shortly. Good morning, and welcome to Taylor Morrison's Second Quarter twenty twenty five Earnings Conference Call.

Operator

Currently, all participants are in listen only mode. Later, we will conduct question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I'd now like to introduce our host, Mackenzie Aron. Please go ahead.

Mackenzie Aron
Mackenzie Aron
VP - IR at Taylor Morrison Home

Thank you, and good morning, everyone. We appreciate you joining us today. Before we begin, let me remind you that this call, including the question and answer session, will include forward looking statements. These statements are subject to the Safe Harbor statement for forward looking information that you can review in our earnings release on the Investor Relations portion of our website at taylormorrison.com. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

Mackenzie Aron
Mackenzie Aron
VP - IR at Taylor Morrison Home

These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the SEC, and we do not undertake any obligation to update our forward looking statements. In addition, we will refer to certain non GAAP financial measures on the call, which are reconciled to GAAP figures in the release. Now I will turn the call over to our Chairman and Chief Executive Officer, Cheryl Palmer.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Thank you, Mackenzie, and good morning, everyone. Joining me is Kurt Van Hefty, our Chief Financial Officer and Eric Huzer, our Chief Corporate Operations Officer. I am pleased to share our second quarter results, which met or exceeded our guidance on substantially all key metrics despite the unique environment. We delivered 3,340 homes at an average price of 589,000. This produced 2,000,000,000 of home closings revenue with an adjusted home closings gross margin of twenty three percent and ninety basis points of SG and A expense leverage.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Our performance reflects our diversified product portfolio that serves a broad and well qualified consumer set with to be built and spec offerings concentrated in core locations. Especially in volatile markets, this balanced strategy is a valuable differentiator that we believe contributes to greater financial resiliency. As I shared on our last call, the start of the spring selling season had been muted as consumers digested stock market volatility, tariff uncertainty, immigration reform, and high interest rates. As the season progressed, sales trends remained softer than normal with some choppiness throughout the quarter. This drove moderation in our monthly net absorption pace to 2.6 per community.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Although this was consistent with our historic second quarter average, it was lower than our expectations in normal market conditions due to increased competitive pressures, especially in first and first move up locations as well as a pickup in cancellations. In this environment, our overall bias between pace and price leans more heavily towards price and ultimately margin and returns given the value of our attractive land positions, desirable communities, and discerning customers, especially in our amenity rich move up and resort lifestyle neighborhoods. We continue to believe that our emphasis on working with each customer hand in hand with our Taylor Morrison home funding team to personalize incentives is the most effective way to create value for both our buyers and our company. This process allows us to educate and inform our customers through prequalification and tailor programs that provide stability and strengthen their financial goals and needs during homeownership. We pride ourselves that our mortgage programs are aligned to serve the consumers that most need the support.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

As an example of just one of our programs that has proven successful in driving traffic and assisting a small subset of customers with their financial goals has been a recently introduced 3.75% conventional seven year adjustable rate mortgage with no discount fees. To put the power of such an offer in perspective, this promotional interest rate would increase our typical customer's purchasing power by about a $138,000 on a $500,000 home financed with a 20% down payment as compared to financing and market interest rates. The point being assuring that we have a wide range of programs and products to meet each customer's needs continues to be key to our success. Affordability continues to be top of mind for our first time buyers, while quality of community and choice remain critical for our other consumer segments as Eric will detail in just a moment. We are by no means immune from the headwinds facing our industry.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

However, we believe our strategy of serving well qualified homebuyers across the consumer spectrum with a well balanced portfolio of to be built and spec homes, primarily in attractive core submarkets where fundamentals tend to be healthier throughout housing cycles, provides important benefits, including a more stable gross margin profile. In contrast to significant industry gross margin compression, our adjusted home closings gross margin has been relatively range bound between 23% and nearly 25% for the last two and a half years. This is much stronger than our historical average due to the improvement in our scale and operating capabilities. And most importantly, as we look ahead, our gross margin is expected to remain within the bounds of our long term target in the low to mid twenty percent range despite the outsized incentive offers and overall pricing pressure we are competing against, especially on spec sales. The prevalence and depth of these incentives has shifted consumer preferences even among traditionally to be built customers towards spec homes as some are willing to trade personalization for the deeper incentives currently available for spec inventory across the industry.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

As a result, our share of spec sales increased in the second quarter to a new high of 71%, including a higher than typical 50% in our Esplanade segment. With specs carrying gross margins below that of to be built homes, we expect that this temporary mix shift will impact our home closings gross margin in the third and fourth quarter as our margin is expected to moderate sequentially to approximately 22%. However, for the year, our adjusted home closings gross margin is still expected to be approximately 23%. And longer term, we expect our business to remain more equally balanced between to be built and spec home offerings. By consumer group, our second quarter orders consisted of 33 level, 50% move up and 17% resort lifestyle.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

As a reminder, in the first quarter, our overall resort lifestyle segment was the only to post year over year net order growth during its peak selling season, while our move up sales were roughly stable and the entry level was down most deeply. In the second quarter, we saw more consistent sales activity across the consumer spectrum with our resort lifestyle and entry level segments both down in the high teen range, while our move up sales were down in the mid single digits driven by a shared lack of urgency due to less confidence. With our broader resort lifestyle portfolio, our Esplanade communities, which account for about 10% of our total, have held up with greater resiliency as we would expect given its affluent customer base. In the second quarter, Esplanade's net sales orders declined just 8% versus 12% in total for the company and its home closings gross margin was slightly improved year over year in the high 20% range. This strong margin is driven in part by outsized combined average lot and option premiums of nearly $270,000 three times that of the rest of our business.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

During the quarter, we broke ground on our newest Esplanade in Summerlin outside of Las Vegas, which already has a robust interest list even before we have initiated our first campaign for the community. We remain committed to a robust expansion of this unique brand in the years ahead. Taking a step back from our current sales environment, we believe the need for affordable, desirable new construction remains intact across our markets of operations given the aging of the population, migration patterns, and evolving buyer preferences. We believe that our diverse portfolio is well positioned to serve this need in the years ahead. While the near term outlook calls for a more patient growth trajectory as we prioritize capital efficiency and returns over volume in today's intensely competitive marketplace, we strongly believe we have the platform and opportunity to jump start growth as market dynamics stabilize.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

In the meantime, with a healthy land pipeline already controlled and healthy balance sheet, we have flexibility to return capital to shareholders on top of the roughly $2,000,000,000 we have invested in share repurchases since 02/2015. As you would expect, our teams are highly focused on controlling costs and working with our trades to further increase production and purchasing efficiencies, which has driven year over year improvement in our stick and brick costs. Additionally, our one of a kind digital sales environment is another source of meaningful cost savings that continues to gain traction and support our healthy SG and A structure. Across the business, our operating priorities are grounded in a disciplined model that we expect can generate mid to high teen returns on equity throughout the course of the cycle, including this year. With that, let me now turn the call over to Eric.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

Thanks, Cheryl, and good morning. At quarter end, we owned or controlled 85,051 homebuilding lots. Based on trailing twelve month closings, this represented six point four years of supply, of which two point six years was owned. We control 60% of our lot supply via options and off balance sheet structures, up from 57% a year ago. We continue to make steady progress towards our goal of controlling at least 65% of lots.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

During the quarter, we invested $612,000,000 in homebuilding land, 43% of which went towards lot development. For the full year, we continue to anticipate our total homebuilding land investment to be around $2,400,000,000 with a downside bias given our heightened diligence in these market conditions. As always, our ultimate cash investment will be dependent on our use of financing tools and market opportunities as the land market has recently exhibited some softness. As a reminder, all previously approved transactions as well as future phases of development are re reviewed by our investment committee for final alignment or any necessary adjustments before closing. We remain committed to executing as a community developer as the vast majority of our prospective customers tell us that they value the community at least as much as the home we provide.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

While time lines associated with entitlements remain the most notable development challenge, tariffs have not had a meaningful impact to our horizontal costs, and in fact, these costs have moderated and access to trades has eased. We continue to keep a careful eye on competitive and supply measures across our portfolio. Our research suggests that our spec count by community is less than the new home averages in the majority of our markets, which we believe is a function of our core location focus. With regards to resale inventory, there has been some moderation in months of supply across many of our Florida and Texas markets, and the average months of supply for our overall market footprint was lower than the national average. To focus upon our consumers for a moment, we've engaged them in attempts to more deeply understand their sentiment.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

Among our shoppers hesitating, our surveys indicate that their primary concern is the overall environment and less so their own personal financial situations. When market conditions stabilize, we believe this suggests that shoppers will be willing and able to move forward with their desired home purchase. We are pleased that despite a more challenging demand environment, our customer satisfaction scores have increased as we engage with both our shoppers and buyers, validating our efforts of creating a differentiated customer experience. Lastly, I wanted to provide a brief update on our ForRent Yardley business. With long term confidence in positioning this operation to provide an efficient model targeted to address housing availability and affordability challenges by leveraging our core competencies in land and construction, we continue to navigate the interest rate environment in evaluating optimal project disposition strategies.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

At this time, we now expect to exit as many as four communities this year. As detailed in this morning's press release, we have executed a flexible finance facility that will enhance cash generation, balance sheet relief and greater optionality as we seek to optimize returns over time in targeting asset exits. The magnitude of this facility is material, covering total project costs of $3,000,000,000 serving both existing and new acquisitions. Kennedy Lewis, with whom we have significant land banking experience, will be the capital provider, and we are jointly committed to our unique platform in producing efficient communities that will assist customers who simply cannot afford a new home today, but who desire a single family living experience. With that, I will turn the call to Kurt.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

Thanks, Eric, and good morning, everyone. For the second quarter, reported net income was $194,000,000 or 1.92 per diluted share, up from $1.86 a year ago. After excluding inventory impairment and certain warranty charges, our adjusted net income was $2.00 $4,000,000 or $2.2 per diluted share, up from $1.97 a year ago. Our closings volume increased 4% year over year to 3,340 homes, slightly ahead of our prior guidance of approximately 3,200 due to a higher number of specs that were sold and closed during the quarter. The share of closings from specs increased to 65% in the second quarter from 58% in the prior quarter and 59% a year ago.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

This higher spec penetration contributed to a 2% decline in the average closing price to $589,000 This was slightly ahead of our prior guidance of $585,000 As a result, home closings revenue increased 2% to approximately $2,000,000,000 With 8,192 homes under production at quarter end including 3,888 specs of which eight forty two are finished, our inventory remains slightly elevated compared to targeted levels. Therefore, we expect our spec closings penetration to remain higher than normal through year end as we prioritize the sale of these homes and meet recent customer preferences for quick move in homes. We also expect to slow our starts volume following a monthly starts pace of 3.4 per community or 3,500 homes in the second quarter, which allowed us to put the universe of homes in the ground for a full year delivery target. For the remainder of the year, the expected slowdown in new starts will be community specific as we look to optimize our working capital and manage our inventory. Also in support of reduced starts volume, we continue to see improvement in cycle times throughout the build process.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

We realized more than two weeks of sequential savings in the second quarter, driven by both to be built and spec home production. We believe that this ongoing improvement strengthens our ability to flex our growth potential as market conditions evolve. For the full year, we still expect to deliver between 13,000 to 13,500 homes, including between 3,200 to 3,300 homes in the third quarter. Based on the anticipated mix of deliveries, we now expect the average closing price to be in the range of $595,000 to $600,000 for the full year, including approximately $600,000 in the third quarter. In the second quarter, home closings gross margin was 22.3%.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

Adjusted home closings gross margin, which excludes inventory impairment and certain warranty charges was 23% in line with our prior guidance. As we look into the remainder of the year, we expect incentives to increase and our spec penetration to remain higher than typical as we continue to normalize our inventory position. As a result, we expect our third quarter home closings gross margin to be approximately 22%. Excluding the inventory impairment and warranty charges realized in the first six months of the year, we expect our full year adjusted home closings gross margin to be approximately 23%. Including the charges and assuming no additional charges through the remainder of the year, we expect our GAAP full year home closings gross margin to be approximately 22.5%.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

Now to sales. We generated 2,733 net orders, down 12% year over year as our monthly absorption pace moderated to 2.6 net orders per community from three a year ago. At quarter end, we had three forty five communities consistent with our prior guidance. Based on our updated sales expectations and timing of community openings and closings, we now expect our ending outlet count to be between three forty to three forty five in the third quarter and approximately three fifty by the end of the year. Our cancellation rate was 14.6% of gross orders, up from 9.4% a year ago.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

As a percentage of our beginning backlog, cancellations were 9.2%, up from 5.2 a year ago. While this increase reflects the change in consumer confidence of late, we believe this remains below industry averages reflecting our strong customer profile, prequalification processes, and backlog customer deposits of approximately $47,000 per home. SG and A expense as a percentage of home closings revenue was 9.3%. This represented 90 basis points of year over year expense leverage due primarily to lower payroll related costs and commission expense. For the year, we continue to expect our SG and A ratio to improve to the mid 9% range due to proactive management of our overhead costs, ongoing back office consolidation efforts and growing efficiencies from our digital sales tools.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

Financial Services revenue was $53,000,000 with a gross margin of 51.1%, up from $49,000,000 and 42.5% respectively a year ago. Helping to manage our incentives effectively, our financial services team achieved a strong capture rate of 87% during the quarter. Among buyers using Taylor Morrison home funding, credit metrics were healthy and consistent with recent trends with an average credit score of 751, down payment of 22% and household income of $188,000 Turning now to our balance sheet. We ended the quarter with liquidity of approximately $1,100,000,000 This included $130,000,000 of unrestricted cash and nine fifty two million dollars of available capacity on our revolving credit facility. We continue to have financial flexibility with our net homebuilding debt to capitalization ratio equaling 22.9% at quarter end and no senior note maturities until 2027.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

During the quarter, we repurchased 1,700,000 shares of our common stock outstanding for $100,000,000 At quarter end, our remaining repurchase authorization was $675,000,000 For 2025, we are now targeting total share repurchases of at least $350,000,000 Since 2015, we have repurchased a total of approximately $2,000,000,000 of our shares outstanding or roughly 60% helping to drive improved earnings and returns for our shareholders. Going forward, we remain committed to both programmatic and opportunistic repurchase strategies to manage our capital and take advantage of the attractive valuation opportunity in our equity. Inclusive of this year's repurchase target, we expect our diluted shares outstanding to average approximately $101,000,000 in the full year including $100,000,000 in the third quarter. Now I will turn the call back over to Cheryl.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Thank you, Kurt. In closing, I would like to highlight that we released our annual sustainability and belonging report earlier this week on Monday. This year, the report is built around the theme of resiliency, a term we believe captures not only our financial performance in the face of challenging market dynamics, but also the performance of our homes as well as the long term desirability and livability of our carefully planned well located communities. This intentional effort to build resiliency into every facet of our operations is core to who we are as a builder and community developer as you can read more about in this week's publication. To end, let me express a tremendous thank you to the Taylor Morrison team.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

I am continually impressed by our team members' execution and enthusiasm to be the best we can be. Thank you to each of you for all you do and all you will do to make the second half of the year a success. Now let's open the call to your questions. Operator, please provide our participants with instructions.

Operator

Thank you. We'd now like to open the lines for Q Our first question comes from Matthew Bouley from Barclays. Matthew, your line is now open.

Matthew Bouley
Matthew Bouley
Senior Equity Research Analyst - U.S. Homebuilding & Building Products at Barclays

Good morning, everyone. Thank you for taking the questions. Guess I'll start with a question on the spec mix in the quarter. So that 71% of sales, think you said. I guess my question is that kind of like a market driven, I don't know, softness on the to be built side, kind of increasing that spec mix therefore, sort of your own decisions around price over pace with the to be built side?

Matthew Bouley
Matthew Bouley
Senior Equity Research Analyst - U.S. Homebuilding & Building Products at Barclays

I mean, it seemed like the spec production at the end of the quarter was not too different versus Q1. So I guess just trying to understand the reasoning behind that jump in spec and then obviously going forward, should we expect it to kind of stay at these levels? It sounded like that's what was expected in the second half, but just any more detail on that. Thank you.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

Yeah. Hi, Mike. Thanks and great question. Matt. Sorry, Matt.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

Yeah. Relative to the specs, I think last quarter when we talked about what kind of Q2 was going to be, we kind of set that up that we were going to have a higher spec concentration overall coming through the P and L based on kind of some of where the inventory was throughout all of our communities, whether it was entry level and or move up, and as Cheryl alluded to, even from kind of a resort lifestyle. So it's a function of that. And on a go forward basis, we still expect that we're going to continue to have a higher concentration of specs coming through here in the near term kind of as we work our way through the year. But going forward beyond that, we continue to kind of be fans of a more balanced kind of approach relative between the mix between our specs and to be built.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Yeah. And I think, Matt, Kurt's exactly right. The only thing I'd add to it is it's and you nailed it, in your question. It absolutely is a function of what we're hearing from the consumer. You know, Eric can go into more detail, and I think some of his comments articulated that the buyer has really begun the consumer has really begun to understand the value proposition that's available with inventory homes.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Even in some instances where we would generally expect to see a to be built buyer, and some, you know, it's not one size fits all. Some to be built absolutely know what they want and are willing to pay for it a little differently. But the consumer understands the incentive environment that's sitting with inventory, and they're prioritizing that in their in their decision process. So we wanna make sure we have the inventory in the market to address it.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

And maybe just to triple down really quick, Matt, we do ask our consumers. We've been asking them for years, you know, what percentage of you of shoppers need a spec, have an interest in spec or would be open to a spec? And it's been really interesting to see over the last couple of quarters to see that elevate. I think to Cheryl's point, to some degree, it's because of looking for that deal and the economics. But we've we've tended to try gravitating our spec count to the demand from our shoppers.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Yeah. And the only real difference for us is we are seeing a stronger pickup in what I would say that move up or even the resort lifestyle buyer, which, generally that was a smaller piece of that business.

Matthew Bouley
Matthew Bouley
Senior Equity Research Analyst - U.S. Homebuilding & Building Products at Barclays

Okay. Got it. Yeah. No. Great great color.

Matthew Bouley
Matthew Bouley
Senior Equity Research Analyst - U.S. Homebuilding & Building Products at Barclays

Helpful. Yeah. So a lot of it seems like consumer driven, and you guys making sure you have the right product on the ground for that for where that demand is. Okay, super helpful. So then I guess secondly, just jumping down to the gross margin side, just to double click on that.

Matthew Bouley
Matthew Bouley
Senior Equity Research Analyst - U.S. Homebuilding & Building Products at Barclays

I mean, sounded like the spec mix was behind the Q3 gross margin guide. I just wanted to check if we're talking '23 adjusted for the full year, is the implication that the fourth quarter is actually expected to be higher than the third quarter within that or roughly flat? Just any kind of detail on the kind of cadence there in the second half. Thank you.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

Yes, Matt, another great question. As we kind of look at it, we've guided Q3 that we're expecting 22% for Q3 based on the higher spec penetration. For the full year, when we kind of think about what adjusted margin is for the full year at roughly 23%, I think you can probably do the math on there and I think it's going to be pretty close to around 22% for Q4. We're not guiding to that right now. But I think just based on how the math falls out, it'll be approximately 22%, roughly speaking, in q four.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

And probably you agree, Kurt. The only thing that will move that one way or the other, generally speaking, obviously, you have a mix impact, but it's really gonna come down to what happens to rates and the incentive load based on, the forward commitment, the, you know, the the programs that we have available for the consumers in the mortgage market.

Matthew Bouley
Matthew Bouley
Senior Equity Research Analyst - U.S. Homebuilding & Building Products at Barclays

Understood. Perfect. Well, thanks everyone and good luck.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Thank you, Matt.

Operator

Thank you very much. Our next question comes from Michael Rehaut from JPMorgan. Michael, your line is now open.

Michael Rehaut
Michael Rehaut
Executive Director at JP Morgan

Great. Thanks. Good morning, everyone. Thanks for taking my questions. I want to delve a little bit into the announcement with Kennedy Lewis regarding the $3,000,000,000 facility.

Michael Rehaut
Michael Rehaut
Executive Director at JP Morgan

The press release cited greater some balance sheet relief and greater optionality, specifically, I guess, terms of disposition of assets. So I'm kind of curious in terms of, you know, if this would if this agreement is going to result in some movement of assets off of your balance sheet into the facility, I suppose? Or and and if you could just go into a little more detail in terms of, you know, the you know, what you mean by greater optionality, and if there's, you know, you know, an improvement in, perhaps cost of financing for the projects.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

Yes. Mike, I'll start with that. And good question. Appreciate it. We're really excited about it.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

As we've mentioned too in the press release, we've done some business with Conway Lewis before. We understand how each other think. And I think this works for both of us. And so to answer one of your questions relative to current assets versus prospective assets, the facility is intended to serve both. And so we do own about 35 assets, and a fair number of those are contemplated to move over in the facility in the coming couple of quarters.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

And then, of course, as we think about new deals, the intention is for those to go into that facility as well. For all intents and purposes, from a functional standpoint, it's akin to a land bank, and that we jointly underwrite deals. Kennedy Lewis would be assigned the contract. They would purchase it, and we would pay for a kind of an interest rate along the way. The interesting thing on this one is that it will serve all the way through stabilization of the asset, so through vertical construction.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

Lastly, on the optionality piece, I would tell you that our job is to option to basically optimize the value of those assets. And as we think about the competitive arena for each asset in terms of what other assets are available around it as well as cap rates, where we are from a leasing standpoint, lease rate. And so it just provides a little bit more timing in terms of just having the ability to optimize the value of each asset as we think about the environment and the valuation that the market's telling us.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

And, Eric, is it fair that on the existing assets, you know, land tends to be the smaller piece of the overall investment. We won't get the even though we'll move, and we won't necessarily get the balance sheet relief, but we'll get all the support on the development side. Right?

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

Very true. So, yeah, typically, the land burden, as a percentage of this revenue for these assets is a little bit lighter, just sort of Cheryl's point. We do expect the magnitude to be noticeable as we think about conveying those early assets. But some of them, if they're just land, it's not going to be a huge dollar amount day one.

Michael Rehaut
Michael Rehaut
Executive Director at JP Morgan

Okay. So in terms of just, you know, the just to clarify, when you talk about moving some of the assets off the balance sheet, that are you talking about maybe like initially, it would be a couple 100,000,000 and so it wouldn't have that much of a demonstrable impact on return on assets or return on equity?

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

For the overall organization, perhaps not. But like I said, as we alluded to, it's $3,000,000,000 so we do expect it to ramp over time. So really not framing the day one magnitude. But like I said, of those 35 owned assets, 13 of them are with the prior joint venture that we've alluded to. And so the balance, most of the others are intended to transfer over.

Michael Rehaut
Michael Rehaut
Executive Director at JP Morgan

Okay. Then just secondly, in terms of, you know, maybe trying to get an early sense of of growth for 2026. You know, you've obviously laid out goals in terms of where you wanna get over the next several years. You had a competitor talk maybe about community count growth. One of your larger competitors at least maybe in the mid to high single digit range for 2026.

Michael Rehaut
Michael Rehaut
Executive Director at JP Morgan

Just given the current backdrop, given your own land option and owned pipeline, Is that a reasonable way to think about growth for for Taylor in the upcoming, '26 calendar year? Or, you know, are are there other variables to consider?

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Yeah, Mike. Thank you. Obviously, you know, we haven't we're not ready to guide for 2026. But I think as we've implied in our investment day and our last couple calls, you know, we continue to expect growth in each of the out years. Having said that, you know, and I think I said in my comments, you know, we really want to look at the market and make sure that we do the right thing on every single asset.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

We certainly have the operational capabilities. We have the team to take what the market gives us. But the way we look at new land spend, as we continue to pry prioritize returns is really gonna be based on the market. You know, as you heard from Eric, we still are guiding to something no more than 2,400,000,000.0 in land spend. But as we sit here today, I think you give us another quarter to understand how the market's responding.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

And if we continue to see a reduction in inventory, I think it will be a lot easier in our next call to talk more about '26.

Michael Rehaut
Michael Rehaut
Executive Director at JP Morgan

Great. Thanks so much.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Thanks, Mike.

Operator

Thank you very much. Our next question comes from Trevor Allinson from Wolfe Research. Trevor, your line is now open.

Trevor Allinson
Director - Equity Research at Wolfe Research LLC

Good morning. Thank you for taking my questions. Cheryl, I wanted to follow-up on that last comment. Just thinking about prioritizing price and margin here in the current environment. How should we think about your willingness to slow pace further from here if demand were to remain soft as we enter a seasonally slower tummy?

Trevor Allinson
Director - Equity Research at Wolfe Research LLC

Or is there a lower bound, on absorption pace, that you would you would not like to dip below if demand were to remain soft?

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Yeah. I think there's a lot of factors that go into that, Trevor. Obviously, if I think about, you know, confidence today, sales are all about confidence in with the consumer in today's environment. It's not really about the financial capabilities of our buyers, Eric pointed out, from what we're seeing in our surveys and in the macro data. But we do know the buyers want a deal.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

And in some of our assets, that's gonna make a lot of sense where we have inventory and we look at the competitive environment in that local submarket. There are some places where we're gonna move pace, and there will be a cost to do that. Having said that, there are other, assets that, honestly, we will be very patient, and we're not going to, put them on sale. We have a very strong book of assets. And as we move to our active adult and our move up buyers, some of those assets in more core locations become very difficult to replace, and we're not gonna put those on sale.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

You know, we've said that, structurally, we think our paces should be somewhere long term in the low threes. Obviously, we saw a little bit of a reduction in our pace in q two. There are a couple of reasons. I look at our active adults specifically, and we had, you know, a couple of astronauts push out because of power issues that would have had our Esplanade business, you know, actually up year over year. So there's you know, you actually have to peel back the onion to really understand it.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

When I look at the combination of our closeouts in the third quarter, which tend to sometimes move a little slower, but then I offset those with some of, our openings, that's what gives us confidence in the overall year, gives us confidence in our closing and margin guide.

Trevor Allinson
Director - Equity Research at Wolfe Research LLC

Okay. Thank you for that, Sheryl. Was very helpful. And then switching over to the cost side, a peer of yours yesterday was talking about potentially seeing some relief on development costs. In your guys' prepared remarks, you all mentioned seeing some softness in the land market.

Trevor Allinson
Director - Equity Research at Wolfe Research LLC

Can you provide more color there? How widespread is that? Any specific markets you're seeing the most relief? And then when do you expect to potentially see some of that benefit start to come through? Thanks.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

Hey, Trevor. Eric here. Yes, I think it's both sides. I think on the acquisition side, that was really what we were alluding to with regard to some softness. And as you think about what that looks like over time, it starts with kind of timing and terms in deals, and then eventually, it works its way into some of the pricing.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

And so we have had some success in our underwriting and kind of recalibrating the market and realizing some of that through our acquisition underwriting. We expect that to continue a bit. And really, what we're alluding to is a little bit of a normalization relative to the price inflation that we're seeing in the market. If the long term trend is something like 10%, that's really been cut in half. You're talking low single digits.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

On the development side, similarly, I think because development has slowed to some degree across the markets, you're seeing a little bit more access to trades. You're seeing a little bit greater ability to negotiate on those terms. So again, whatever the long term trend might be in terms of inflation, think about half of that on the development side. So that's what we're really seeing.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

If you think about everything that's coming through the investment committee, would it be fair to say that, you know, a lot of success in structurally negotiating kind of new assets, maybe even assets that are controlled today. Price, you know, a little harder to get, but we're seeing some success in some some specific positions.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

Yeah. Which is kind of the normal the normal train. Right? It starts. As markets Yep.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

And and we'll see how long this hesitation in the market lasts. And, if it continues, we'll continue to rereview every single deal coming through. And we'll ask for something, and and in many cases, we'll get it.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Yeah.

Trevor Allinson
Director - Equity Research at Wolfe Research LLC

Very helpful. Thanks for all the color, good luck moving forward.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Thanks, Trevor.

Operator

Our next question comes from Mike Dahl from RBC. Mike, your line is now open.

Mike Dahl
Mike Dahl
MD, Equity Research - Homebuilders & Building Products Analyst at RBC Capital Markets

Hi, good morning. Thanks for taking my questions. Mike. My first question,

Mike Dahl
Mike Dahl
MD, Equity Research - Homebuilders & Building Products Analyst at RBC Capital Markets

I just wanted to go back to just going back to Trevor's question, maybe trying to put a finer point on things. Can you talk about what you've seen in July so far? And to the point on pace that are moving pieces, but given the back half is normally seasonally lower, yet you're just coming off a quarter that was well below normal seasonal trends? Can you help us understand, like, do you think you'll hold pace flattish in the mid-2s? Should we still expect a further drop off?

Mike Dahl
Mike Dahl
MD, Equity Research - Homebuilders & Building Products Analyst at RBC Capital Markets

Your closings, you can hit with some of the backlog and specs, but just trying to understand that near term pace dynamic and and Angela comments.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Yeah. You know, as the we had a nice finish to June, and June started a little slower. Nice finish. I would say as we rolled into the third quarter, Mike. I mean, the holiday, the way it fell on the calendar, I would tell you the first week of the month was slow.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

We have seen a pickup in traffic and website activity and sales activity had a last, you know, last week a nice week. So early results into the quarter, obviously, but it's you know, I think our perspective on managing price and pace on a community by community asset holds, which and with our community openings, I like to think we'll be somewhere in a, you know, similar place. If I look historically, generally, we do see a fall off, from q, you know, '2 to q three. We also expect, you know, early August, you start getting some normalcy back into this the seasonality with kids back in school and normalized activity, but a little early to comment on kind of the macro with August and September.

Mike Dahl
Mike Dahl
MD, Equity Research - Homebuilders & Building Products Analyst at RBC Capital Markets

Okay. Fair enough. And just sticking with the price versus pace dynamic, I mean, it makes sense. I hear what you're saying. Your order ASP was still down quite a bit.

Mike Dahl
Mike Dahl
MD, Equity Research - Homebuilders & Building Products Analyst at RBC Capital Markets

I assume some of that is mix related. But when we think about kind of the the order ASP and how you're managing that pace versus price dynamic, any any color on on whether that side should start to stabilize a little bit because we were down 5% quarter on quarter or 6% year on year? Any help on on that would be good.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

I mean, Kurt shared kind of our expectations for price for the balance of the year, but you're absolutely right. It was even though it was a little bit ahead of our guidance, it really was a mix issue and both a geographic mix issue as well as a spec penetration as much as anything. Mike, remember that, you know, we we have made some comments that we've got, you know, inventory more universally across all consumer groups, but the majority of that inventory is always gonna address that first time buyer, and that's just at a lower price point. Even when I look at the active adult penetration, specifically a couple positions in, Florida, Sarasota specifically, we had some strong townhome penetrations which had our lower price than our normal resort lifestyle or esplanade. So not just one thing, but I think all of those contributed to the overall price.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Did I miss oh, and then Indy. You had that's really fair, Kurt. We had a full quarter of Indy, which is primarily Indianapolis, which is primarily a first time buyer market for us so far. And you think about last year, we had, you know, nine weeks in the quarter. This year, we had a full quarter at that penetration.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Good news is when I look at the Indianapolis results, you know, their pace doubled year over year. So good it's it's a good result, but it absolutely is gonna have an impact on the ASP.

Mike Dahl
Mike Dahl
MD, Equity Research - Homebuilders & Building Products Analyst at RBC Capital Markets

Okay. Thank you.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Thanks, Mike.

Operator

Thank you very much. Next question comes from Alan Ratner from Zelman and Associates. Alan, your line is now open.

Alan Ratner
Managing Director at Zelman Partners LLC

Hey guys, good morning. Thanks as always for the great detail.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Good morning.

Alan Ratner
Managing Director at Zelman Partners LLC

Really appreciate it. Good morning.

Alan Ratner
Managing Director at Zelman Partners LLC

First question on the cancellation rate. I know I don't want to make a mountain out of Molehill here because it's still a pretty healthy overall level. But you did flag it as kind of something that was a bit of a downward surprise in the quarter and up year over year. I was just curious if you can give a little bit more color on these cancellations because I know you guys take a pretty hefty deposit and generally with the build to order business, although it's shrinking, that tends to mitigate some of the cancellations. So at what stage are you seeing these cans?

Alan Ratner
Managing Director at Zelman Partners LLC

At what price point market specifics? Maybe any any additional color you can give to understand what's what's driving that would be great.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Yeah. It's a really fair question. We did highlight highlight it, Alan. You know, it's hard to find, a company wide trend. Let me start there.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Actually, where I'll start is you're absolutely right. When you look at our can rate, it's, I think the flag is it's up, you know, quarter over quarter, a little higher than we've seen in a couple years. Right? But still, as far as the industry goes, I would say, honestly, quite low. When I look across the regions, you'll see relatively consistent, maybe central being down just a bit.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

If I were to point to the most prevalent, it actually wasn't getting financed. It was actually in a number of situations. It was a home to close that maybe fell out, a home to sell that maybe we pushed out a contract because they didn't sell it and we're not gonna sit on inventory. We had some situations with relos changing. We had some situations, where honestly, a buyer, you know, was in contract for a little bit longer, and then they, you know, across the street find a a ridiculous deal of an incentive, and it's easy to walk away from the deposit.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

But there wasn't one one, I would say, obvious, trend across the entire portfolio. And as I said, if I had to point to one, it would probably be, on their existing home. And when you think about our move up buyer, most of them need to sell their existing home, but not all of them.

Alan Ratner
Managing Director at Zelman Partners LLC

That that's really helpful. And I have a separate question, but hoping to squeeze a quick follow-up on that point. In that circumstance where somebody is in contract and can't sell their existing house, do you guys keep the deposit?

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Generally, yes. It depends on, one, did they write it as a contingency? We only take a certain number of contingencies by community. If we're gonna take a contingency, we're gonna really scrub their existing listing and understanding how they positioned it in the marketplace. Sometimes they'll have a, thirty day contingency, and then that gets released.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

So I would say unless it falls within the I mean, if it doesn't fall within the guidelines, we do keep the deposit. And we have a pretty, a pretty black and white line on that.

Alan Ratner
Managing Director at Zelman Partners LLC

Got it.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Actually, the only thing I'd add to that is we do incent them, Alan, to come back within twelve months, and we'll reapply the deposit. But we would keep it.

Alan Ratner
Managing Director at Zelman Partners LLC

That makes sense. Alright. Second question, I guess, circling back to '26, and I know you're not gonna give any guidance there, I'm not looking forward. But I'm curious if you think about the guidance for the remainder of this year. Obviously, a lot of these closings are coming from your spec inventory.

Alan Ratner
Managing Director at Zelman Partners LLC

So your backlog today is down about 30% year over year. It's probably going to end the year in a pretty similar spot, assuming the mix of business stays elevated at specs. So you flagged you're pulling back on starts right now, which I understand. But as you think about next year's spring selling season, is there a point where assuming you're successful in clearing through these specs and delivering the closing guidance, is there a point where you're going to look at your start pace and say, you know, we really need to reaccelerate things if we wanna show growth in '26?

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Yeah. It's all gonna be dependent on market conditions, Alan. But, of course, I mean, we're gonna really be focused also with our new esplanade openings and some of our new move up positions to, you know, where it's possible to accelerate our to be built business. Right? Because that's generally what we come into the new year with, a strong to be built backlog.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

So that will continue to be a priority for the the business. But then as we move through these specs, we absolutely will replace them. We'll do them in the right locations where the consumer wants inventory. But we have to make sure that the consumer you know, that they're in the right places and, understand kind of the macro. But given today's environment, if I were to look at what we're looking at, you know, today based on consumer feedback with the priority or preference being inventory, we will continue to replace them, but at a, I'd say, a very responsible rate.

Alan Ratner
Managing Director at Zelman Partners LLC

Got it. Appreciate that. Thank you, guys. Good luck.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Thank you.

Operator

Thank you very much. Our next question comes from Ralph Gervoski of Bank of America. Ralph, your line is now open.

Rafe Jadrosich
Rafe Jadrosich
MD & Senior Equity Analyst - U.S. Homebuilders & Building Products at Bank of America

Hi, good morning. It's Rafe. Thanks for taking my question. Wanted to ask you, you spoke about the absorption pace on the move up versus entry level versus resort lifestyle. Can you talk about the margins or incentives by by segments? Have you seen any any changes there?

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Yeah. I would say that when you think about incentives, the way I would look at it is, we can certainly talk about it by consent group, but your most expensive, incentives are gonna go with finished inventory because that's probably where we will focus on forward commitments and those permanent buy downs. You know, we've talked in the past about our buy build and some of our other proprietary programs where on a to be built or an earlier spec where we can assure a consumer a below market rate, those aren't quite as expensive. The only thing that I would point out as somewhat different from the norm is with the resort lifestyle buyer, many of them don't take mortgages, or they take very small ones. So our incentives there might be more focused on, you know, a percentage of options that they buy or if they buy, you know, this many, we'll give them a percentage off.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

But that would really be the exception. Exception. And, generally, as we've talked about, everything else is really tailoring that right promotion. But the further you get down the to a completed inventory home, the more expensive your incentive is.

Rafe Jadrosich
Rafe Jadrosich
MD & Senior Equity Analyst - U.S. Homebuilders & Building Products at Bank of America

Okay. That's helpful. And then when we look at the third quarter back half margin guidance relative to where you were in the second quarter, Can you just between the higher incentive level and mix impact, can you sort of give us some color on each of those pieces? Maybe like how much of the step down is from each of those?

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

Yeah, Rafe. I would say that the majority of it is going to be on the spec penetration and maybe some mix. But as we alluded to kind of in our prepared comments, most of it's predicated on kind of the increase of our spec penetration that is resulting kind of in that kind of step down from a margin standpoint. A minimal impact from a mix perspective. We are seeing a little bit higher sales price mix for the rest of the year with some higher priced communities kind of getting closings or increased closings in kind of our Western segment.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

But most of it's going to be as a result of the increase in our spec penetration and the resulting incentives associated with that.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

And we've assumed relatively stable incentives. Right? As though interest rates were gonna remain generally where they are now.

Operator

Great. Thank you very much. Next question comes from Ken Zena from Seaport Research Partners. Ken, your line is now open.

Kenneth Zener
Kenneth Zener
Senior Analyst - Housing Sector at Seaport Research Partners

Good morning, everybody.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Good morning.

Kenneth Zener
Kenneth Zener
Senior Analyst - Housing Sector at Seaport Research Partners

I wonder the Florida buyers, I know you guys, obviously, with your Investor Day, spent a lot of time down there, asked the same question to hopefully yesterday. But, like, what percent of those active adult buyers in Florida for those, you know, homes are generally from Florida, if you could go that out a little bit? Your active adult buyers in Florida are mostly from out of state or how

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

Yeah. And it depends a little bit. It's a big state. So it's interesting. If you go all the way down to Naples, it's historically been as high as 80% over time.

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

And if conversely, if you go to up north, it's it's something that's gonna be closer to 50%. Still a lot and and noticeable, but it does depend.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

And it's also seasonal. Right? So in the price of the season, the majority of our buyers are on stay. But as you move through, like, the summer months and kind of shoulder, you tend to have a more in state buyer. So, you know, having listened to the call yesterday, Ken, I would I would agree with what you heard yesterday.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

And our Florida buyers come from all over, West Coast, internationally, East Coast. There's a lot I mean, there's a lot of desire to live in Florida and across the state. So we continue to be quite bullish on Florida.

Kenneth Zener
Kenneth Zener
Senior Analyst - Housing Sector at Seaport Research Partners

Excellent. And then if you could and I apologize I should know this. But when you say spec 71%, can you define spec? Is that intra quarter order closings? And how does that 71% compare to last quarter and a year ago's quarter? Thank you very much.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

Yes. The 71%, Ken, was the percentage of spec sales in the quarter. I think a year ago, that was probably in the just checking my notes. Something closer probably in the in the the what I would say in the mid sixties.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

That was higher and then our penetration I'm sorry, Ken. So that was higher as well as our penetration of what we sold Right. Closed in the quarter. So they were both a bit higher than I would say, historical norms.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

Yes. Ken, I found it here. Actually, a year ago, our the percentage of our spec sales in the quarter were right around 59%.

Kenneth Zener
Kenneth Zener
Senior Analyst - Housing Sector at Seaport Research Partners

Great. And then is that how is that different than intra quarter orders that were closing? Because that's traditionally how I think about spec. What is that metric if you have that available? Thank you.

Curt VanHyfte
Curt VanHyfte
CFO at Taylor Morrison Home

Yes. The percentage of our specs that sold and closed in the quarter was 28%, which again is higher than where we've been historically as well.

Kenneth Zener
Kenneth Zener
Senior Analyst - Housing Sector at Seaport Research Partners

Thank you very much.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Thanks, Ken.

Operator

Thank you very much. Our next question comes from Jay McCanless from Wedbush. Jay, your line is now open.

Jay McCanless
MD - Equity Research at Wedbush Securities

Great. Thanks. Good morning, everyone. So three questions for me. The East orders performed much better on a comparison basis versus the company average.

Jay McCanless
MD - Equity Research at Wedbush Securities

Guess, could you talk about what you're seeing in Florida, and and also in Atlanta? I know that's an important market for you guys.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Yeah. Certainly can. As I said, I talked a little bit already, I think, about Esplanade. You know, if I start with kind of the Southeast, Jay, that remained quite strong throughout the quarter. We saw year over sale year over year sales improvement in our Carolina and Atlanta markets.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

I've already talked a little bit about, Indy. When I moved to Florida, you know, it's a little bit of a mixed story. Our Orlando business, which is our largest Florida business, had a nice year over year increase in sales, and that was fueled by some community count growth and a very modest reduction in pace. But I think most importantly, when I think about Orlando, it's their mix of communities is really shifting from what we've had the last year or two to a more balanced book of consumer groups away from just exclusively first time buyers, which will continue to improve sales, margins, and returns. Sarasota also saw a nice improvement in pace, and I think did a nice job reducing their inventory.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

But as I mentioned before, we saw a pretty strong townhome penetration in Esplanade, which is unusual for us, but it did moderate their ASP and brought down even as high as our upgrades were, brought down the typical upgrades for the quarter. I guess before I leave Sarasota, I did mention that we had that new Esplanade opening with just a great interest lester in q three. So that we had planned to open last quarter. So very excited about that when I look at the interest. Jack's also had a nice sales growth from both community count and pace expansion.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

You can hear it feel you know, hear a trend here. We're also very excited to open our first Esplanade there in Saint Mary's, and that will be in the first quarter. That one also has a nice interest list. And then I would tell you Tampa was probably the only market where we saw some real softness in the quarter in our paces. We saw higher cans than normal, and that was, predominantly in our first time buyer.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Good news is across the state, Jay, we saw resale inventory month of supplies reduced in almost all our markets.

Jay McCanless
MD - Equity Research at Wedbush Securities

Great. Thank you, Sheila. And then shifting out west, we heard from a couple of your competitors yesterday that, NorCal especially may be seeing some some tech job loss or some tech job concerns. Maybe what what are you hearing from the field out there, and and how are you thinking about that? Because I think y'all's community mix is pretty even between NorCal and SoCal, but anything you can give us on both those areas would be appreciated.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Yeah. You know, for us, I'd say a little different. I mean, we've been talking with The Street with you, Jay, for a while about lightening our capital investment, particularly in SoCal and reducing our community exposure. You know? So the communities that we have in SoCal, I would tell you, are performing well above the company average on absorptions.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

But the fact that community countdown, which was quite intentional as we've reallocated funds to other markets, it has created some drag on total sales in the West. If I head up to Northern Cal, I would describe Sacramento as stable with relatively consistent community and paces. Our Bay business was flat on sales year over year. You know, it's interesting because our towns in the Bay, and maybe this goes back to one of the earlier questions I got, were actually below the company average even with all the tech noise we're seeing, and I would tell you have moderated quite a bit since the back half of last year. So for us, the base sales only being flat had to do with, you know, open communities.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

We have three new communities that just opened at the end of the quarter. I'm excited about those because that will help grow the balance of the year. It's our only market with an ASP over a million dollars. So you would expect some cautiousness with their equity in the tech, you know, in a tech market like that. But honestly, it's been pretty good overall.

Jay McCanless
MD - Equity Research at Wedbush Securities

That's great. Thank you. And then, I thought it was pretty interesting, the shopper surveys you talked about in your prepared comments, Cheryl. I mean, I think the bottom line from that is the average team consumer is looking at a house. Their financial situation is in pretty good shape, but it's more the macro that's scaring them at this point.

Jay McCanless
MD - Equity Research at Wedbush Securities

Is that is that the bottom line takeaway we need to have from that?

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Perfect summary. You know, you're dealing with this move up active adult buyer. Jake, you're moving you're you're talking about a more sophisticated consumer. So the fact that they wanna make sure they're getting the right deal compared to the marketplace, The fact that they're gonna be a little bit more cautious and understand how the macro affects them, I think makes a lot of sense. They have the financial wherewithal.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

It's not that that's holding them, the ones that are kind of sitting on the sidelines. Would you agree any other specifics in the research, Eric, that you point to?

Erik Heuser
Erik Heuser
Chief Corporate Operations Officer at Taylor Morrison Home

No. It's really interesting. And I think it, you know, it circles back to kind of the interest in specs and and looking for incentives, too. I think it's all tied together, and it's really sentiment. And so again, rightly or wrongly, the prepared remarks, we framed that as a positive because it's much more difficult to fix your financial situation than it is At least that's something that, you know, you don't it's really about the newspaper and the sentiment that that seems to be impacting people's desire to be out shopping.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

To make to move it. You know? And we'll see in some time, Jay, what happens. But I would point to the big beautiful bill and some of the benefits, you know, with the SALT, the SALT deduction cap temporary lifted, the permanence of the 750 on mortgage interest that now won't expire. I think some of those things will help the consumer.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

I think all of that's kind of been up in the air for a while. Obviously, the mortgage insurance deductions, I think that will be more focused to the the, entry level buyer. But I think all of those things, as all of this kind of is put to bed, I think, and gets understood by the consumer, and then some confidence in what's gonna happen with rates, I think all of this begins to play a part for them.

Jay McCanless
MD - Equity Research at Wedbush Securities

So since you brought it up,

Jay McCanless
MD - Equity Research at Wedbush Securities

I'm gonna go ahead and ask it. I I was gonna ask this question probably next call next quarter's call, but have you all looked to see with this increase on on the salt cap, how much it might help people? I figured I figured everyone's gonna be talking about it, looking at it. But since you all brought it up early, I I figured I'll go ahead and ask now.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Yeah. I think we at this point, I don't think I can quantify it for you. For us, it's really California that's gonna be impacted, right, mostly. It's absolutely gonna have a benefit. I think the benefit goes to your last question, though.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

It really does come around confidence. They're not gonna make a purchase a purchase decision because of the salt cap, but the you know, having that, I think, in the formula helps them. We're looking at it on an overall price point. If you look at the bay price I just talked about with the the, you know, overall ASP at a million dollars, it's certainly gonna create a benefit. I don't think it's what gets them over some of the confidence issues they're dealing with, but I think it's helpful.

Jay McCanless
MD - Equity Research at Wedbush Securities

Absolutely. I think probably for Texas as well, some of the higher priced homes you sell down there because people forget that Texas is a relatively high property tax market. So, yeah, I'll I'll definitely ask you about it next week because I think it's gonna be good for y'all's business and and the industry. Thank you. Thanks for taking my questions.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Thank you. I appreciate it.

Jay McCanless
MD - Equity Research at Wedbush Securities

Thanks, Karen.

Operator

Thank you very much. We currently have no further questions. So I'd like to hand back to Cheryl Palmer for any further remarks.

Sheryl Palmer
Sheryl Palmer
Chairman & CEO at Taylor Morrison Home

Thank you all for joining us today. I know we went a little long. I appreciate all the questions. Everyone take care, and we'll look forward to talking to you next quarter.

Operator

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.

Executives
    • Mackenzie Aron
      Mackenzie Aron
      VP - IR
    • Sheryl Palmer
      Sheryl Palmer
      Chairman & CEO
    • Erik Heuser
      Erik Heuser
      Chief Corporate Operations Officer
    • Curt VanHyfte
      Curt VanHyfte
      CFO
Analysts
    • Matthew Bouley
      Senior Equity Research Analyst - U.S. Homebuilding & Building Products at Barclays
    • Michael Rehaut
      Executive Director at JP Morgan
    • Trevor Allinson
      Director - Equity Research at Wolfe Research LLC
    • Mike Dahl
      MD, Equity Research - Homebuilders & Building Products Analyst at RBC Capital Markets
    • Alan Ratner
      Managing Director at Zelman Partners LLC
    • Rafe Jadrosich
      MD & Senior Equity Analyst - U.S. Homebuilders & Building Products at Bank of America
    • Kenneth Zener
      Senior Analyst - Housing Sector at Seaport Research Partners
    • Jay McCanless
      MD - Equity Research at Wedbush Securities
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