Executive Vice President and Chief Financial Officer at PulteGroup
Thanks, Ryan, and good morning. Following on Ryan's comments, our second quarter financial results demonstrate both the continuation of positive trends as well as some of the newer challenges which are impacting the market. In the second quarter, PulteGroup's home sale revenues totaled $3.8 billion, an increase of 18% over the prior year. Higher homebuilding revenues in the second quarter were driven by a 19% or $83,000 increase in average sales price to $531,000.
Given our construction cycle times, the increase in average selling prices primarily reflects strong demand and pricing conditions across all buyer groups in the back half of last year. In the quarter, we closed 7,177 homes, which is down less than 1% from last year and a few units below our guide. While the overall production environment remains generally challenging, the shortfall in deliveries is primarily attributable to a specific supplier issue that impacted our Florida markets.
More broadly, I think it's fair to say that the supply chain remains challenging. While we are seeing areas of improvement, I would use the word fragile to describe overall conditions. Between limited inventory in the system and bottlenecks in distribution, any disruption in production or shipping can set back construction by a couple of days or weeks. In fact, during the second quarter, our overall cycle times extended by another two weeks. That being said, we are feeling a little more optimistic about supply chain conditions getting better through the back half of the year, allowing us to begin flowing back work days next year.
The mix of deliveries in the second quarter continued to align with our started targets with 35% from first-time buyers, 39% for move-up buyers, and 26% from active adult buyers. In the second quarter last year, the mix was 30% first-time, 43% move-up, and 27% active adult. We reported 6,418 net new orders in the second quarter, which is a decrease of 23% from the second quarter of last year. The decrease in orders reflects both slower sales pace and higher cancellations resulting from the significant increase in mortgage rates over the past several months.
The slowdown in sign-ups impacted all buyer groups, although our first-time buyer spared the best with orders up 1% to 2,454 homes. Move-up orders were lower by 37% to 2,172 homes and active adult orders decreased 27% to 1,792 homes. On a relative basis, the stronger orders among first-time buyers reflects current buyer preference for spec homes that can close sooner with less interest rate risk. By design, our spec production has been heavily weighted toward our first-time communities.
Our reported orders for the quarter also reflects an increase in cancellations as some consumers were impacted by the change in consumer confidence and today's higher rates. On a unit basis, we had 1,152 contracts canceled in the second quarter, up from 665 cancellations last year. This pushed up our cancellation rate for the period to 15%, compared with 7% last year. We always want our homebuyers to complete the transaction and enjoy their new Pulte Home, but when cancellations do occur, we have been able to resell the home.
In the second quarter, we operated from an average of 791 communities, which is a decrease of 2% from an average of 808 communities last year. After several quarters operating at a year-over-year deficit on communities, Q2 should mark an inflection point as we begin showing growth in our year-over-year community counts. More specifically, in the third and fourth quarters, we expect to operate from an average of 800 and 830 communities, respectively. Both numbers would be up over the comparable prior year period as we begin realizing the impact of increased land investment over the last several years.
We ended the quarter with a backlog of 19,176 homes, which is down 4% from last year. While units are down slightly, strong price appreciation over the past year has raised our backlog value by 18% to a record $11.6 billion. At quarter end, we had 23,349 homes under construction, which is an increase of 35% over last year. Consistent with Ryan's earlier comments about buyers seeking to minimize time to close, we have increased spec starts and ended the quarter with 6,789 spec units under production.
While we have been successful in increasing the overall number of homes under construction, longer cycle times mean that 70% of these units are at the start or framing stage. As such, we expect deliveries in the third quarter to be in the range of 7,000 to 7,400 homes. While we have the homes in production, given changing market conditions and ongoing supply chain issues, we now expect full-year deliveries to be in the range of 30,000 to 31,000 homes. Based on the anticipated mix of closings, we expect the average closing price of homes in the third quarter and for the full year to be in the range of $540,000 to $550,000. Supported by the strong price appreciation we have realized over the past few quarters, PulteGroup generated substantial gains in our homebuilding gross margin, which increased 430 basis points over last year to 30.9%. In addition to higher prices, our Q2 gross margin reflects the flow through of lower cost lumber purchased in the back half of last year.
As we discussed on our Q1 earnings call, we've experienced meaningful cost inflation for labor and materials in the current year, led by a significant upswing in lumber cost at the start of this year. Although lumber has decreased again, which will impact our 2023 closings, we've continued to experience incremental house cost inflation as the year has progressed. Based on our most recent internal estimates, we now expect cash costs for the year to be up 10% to 12% over last year.
Despite the ongoing inflation in materials and labor, including the meaningfully higher lumber costs, we are raising our margin guide for the third quarter and now expect to realize gross margins of approximately 30%. At the present time, we are maintaining our prior guide for fourth quarter gross margins to be in the range of 29.5% to 30%. In the second quarter, SG&A expense totaled $351 million or 9.2% of home sale revenues.
In the prior year period, our reported SG&A expense of $272 million or 8.4% of home sale revenues, included a $46 million pre-tax insurance benefit recorded in that period. Excluding that benefit, our adjusted SG&A expense in the second quarter last year was $319 million or 9.8% of home sale revenues. Based on the number of homes we expect to close in the third and fourth quarters, we are targeting SG&A expense in the third quarter to be in the range of 9.1% to 9.3% of homebuilding revenues. At the midpoint, this would be a roughly 40 basis point improvement over last year.
For the full year, we still anticipate SG&A expense to be 9.2% to 9.5% of home sale revenues. Our financial services operations reported pre-tax income of $40 million in the second quarter, which is down from $51 million in the same period last year. The decrease in pre-tax income reflects the extremely competitive market conditions that continue to pressure profitability and capture rate of the business. In the quarter, our capture rate was 78% down from 86% last year as we are unwilling to chase market pricing down to unprofitable levels.
Our tax expense in the second quarter was $212 million, representing an effective tax rate of 24.5%. In the second quarter of last year, our reported tax expense of $136 million or an effective tax rate of 21.3%, included a tax benefit of $12 million and the benefit of federal energy efficient home credits, which expired as of December 31 last year. Looking at the bottom line, PulteGroup's reported net income for the second quarter was $652 million or $2.73 per share. In the prior year, our reported net income was $503 million or $1.90 per share with adjusted net income for the period of $456 million or $1.72 per share.
In the second quarter, the company continued its active share repurchase program, buying back 7.1 million shares for $294 million or an average price of $41.44 per share. Through the first six months of the year, we have repurchased 17.4 million shares or 7% of our shares outstanding for $794 million. Throughout the past 10 years, we have taken a fairly systematic approach to our share repurchases. We plan to maintain a routine presence in the market, but given ongoing stock market volatility, we will incorporate more of an opportunistic approach to share repurchases.
Over the near term, we believe this strategy allows us to be more responsive to changing market conditions. We ended the quarter with $732 million of cash and a debt-to-capital ratio of 20.8%. We continue to see value and the potential to achieve appropriate risk-adjusted returns in many of the land assets we put under control over the last couple of years. As such, we invested $470 million in outright land acquisition during the quarter and invested another $655 million in the development of existing land assets, bringing our total land investment for the second quarter to $1.1 billion.
We remain constructive on long-term housing demand, but we appreciate that market conditions are in flux. While we always maintain a disciplined approach to land investment, we are assessing the land positions we have under control to make sure that the underwriting assumptions supporting our investment, reflect current market conditions and that the projected returns still achieve our required return thresholds. At this time, we still expect to invest between $4.5 billion and $5 billion in land acquisition and development for the year with more than half of this spend allocated to developing existing land assets.
Given today's changing market dynamics, the optionality of our land book becomes an even more important tool for potentially enhancing returns and controlling risks. We ended the second quarter with 243,000 lots under control, of which 54% were controlled through auctions. And as we highlighted in our last earnings call, we are assessing ways to meaningfully increase our option lot position to a target range of 65% to 70% of our lots under control.
Now let me turn the call back to Ryan.