Robert T. O'Shaughnessy
Executive Vice President and Chief Financial Officer at PulteGroup
Thanks, Ryan, and good morning. There's a lot to review this quarter, so I'll dive right in. Home sale revenues for our third quarter totaled $3.8 billion, which represents an increase of 16% over the same period last year. Higher revenues for the quarter were driven primarily by a 15% increase in our average sales price to $545,000. The year-over-year increase in average sales price of $71,000 was driven by improved pricing across all buyer groups as first time was up 20%, move-up gained 16% and active adult was up 15%.
Unit closings in the quarter increased by 1% over last year to 7,047 homes. It's worth noting that approximately 200 closings that were slated for the fourth -- the third quarter were delayed due to Hurricane Ian as we shut down or slowed operations across a number of our Florida and Carolina markets ahead of the storm. On a year-over-year basis, the mix of homes delivered in the third quarter changed slightly as 36% were first-time buyers, 38% were move-up buyers and 26% were active adult buyers.
In the prior year, 31% of homes delivered were first-time, 44% were move-up and 25% were active adult. The shift in mix to more first time is in alignment with our strategy of having approximately 1/3 of our business in the first-time buyer space. Net new orders in the third quarter totaled 4,924 homes, which is a decrease of 28% from last year. The year-over-year decline in orders reflect softer demand, resulting primarily from higher interest rates as our absorption pace fell to 2.0 homes per month, down from three homes per month for the same period last year.
Along with a slower pace of sales, our reported net new orders in the third quarter were impacted by a significant increase in cancellations. Our cancellation rate for the third quarter was 24%, which compares with 10% in the third quarter of last year and 15% in the second quarter of this year. In the quarter, orders among first-time buyers increased 3% over the prior year as sales benefited from a double-digit increase in community count and the availability of quick move-in homes as the majority of our spec production is in our Centex communities.
Orders for move-up buyers were lower by 45% than the prior year, while active adult orders decreased by 31%. Changes in community accounts did not materially impact -- did not materially impact order rates among either of these buyer groups. During the quarter, we operated from an average of 823 communities, which is up 7% from last year. The increase in community count is consistent with our previous guidance and reflects both new store openings and the slower closeout of existing communities.
Average community count for the fourth quarter should increase slightly to 840. At quarter end, our backlog totaled 17,053 homes, which is down 14% from the same period last year. While unit backlog is lower, the dollar value of our backlog increased 3% over the prior year to $10.6 billion due to the rise in our average sales prices. We ended the third quarter with a total of 23,010 homes under construction, which is up 22% over last year. Of the units under construction, 65% were sold and 35% were spec.
Consistent with comments made on prior earnings calls, we've been working to increase our inventory of spec homes primarily in our Centex communities to better serve first-time buyers. We continued start expects in the third quarter as we have continued to see buyer preference for homes that can close in 30 to 90 days across all buyer groups. At quarter end, we were still well below our commonly used metric of one finished spec per community. However, with 8,000 specs in production, we believe we are well positioned to meet demand and to compete effectively in our markets.
Having achieved our targeted level of spec within our production universe, we have now lowered our spec starts and we'll manage our production to maintain the balance of our spec and dirt inventories with an emphasis on build-to-order production for move-up and active adult consumers. Based on the homes we have in production and current sales rates, we now expect closings in the fourth quarter to be approximately 8,000 homes.
The decrease in expected deliveries relative to our prior guide reflects the challenging sales environment, higher cancellation rates and the ongoing impact of Hurricane Ian on our Florida operations. To the last point, while damaged to faulty communities in Florida and the Carolinas was limited, municipal resources are appropriately being diverted to the repair and restoration of services at the expense of getting power to new homes and communities. Based on the mix of homes we expect to deliver in the fourth quarter, we anticipate the average sales price on closings to be in the range of $560,000 to $570,000.
At the midpoint of our range, this would be up 15% over last year. Please note that all of the guidance we provide on this call, including ASP, reflects our current best estimate, but cancellation rates and pricing dynamics as we move through the quarter could impact our actual results. For the third quarter, our homebuilding gross margin was 30.1%, which represents an increase of 360 basis points over the third quarter last year.
Referring back to Ryan's opening comments, our third quarter gross margins benefited from the strong demand and pricing conditions that existed at the end of 2021 and into the first half of 2022. These conditions supported the double-digit price increases we show in the quarter and allowed us to cover higher material and labor costs, including elevated lumber prices. The strength of demand in that period can also be seen in our sales discounts which were only 1% for homes closed in the third quarter.
By contrast, discounts on new orders taken in the quarter increased 180 basis points over last year to 2.5%. It's worth noting that this increase in discounts is in addition to the higher financing incentives we've discussed during our Q2 earnings call. Financing incentives on new orders in the third quarter were 1.9%, which is approximately 80 basis points above last year and our historic average.
Given the demand and pricing dynamics we are currently experiencing in the market, in addition to the increase in incentives needed to attract sales, we currently expect our fourth quarter homebuilding gross margin to be approximately 28%. This would represent an increase of 120 basis points over last year, but would be lower sequentially and is down from our previous guide.
Given the changing market dynamics, our procurement teams are already having discussions with suppliers and trade partners in an effort to identify opportunities to reduce our land development and house construction costs. However, at this point, any savings we are able to realize would benefit our business in 2023. In the third quarter, our SG&A expense was $350 million or 9.1% of home sale revenues. This compares with prior year SG&A expense of $321 million or 9.6% of home sale revenues.
The company remains on track for full year SG&A to be in the range of 9.2% to 9.5%. Given the pullback in buyer demand and expectations that market dynamics will remain challenging for summer all of 2023, we are taking needed actions to better align overheads with current demand. For the third quarter, higher gross margin and greater overhead leverage helped PulteGroup generate an operating margin of 21%, which represents an increase of 410 basis points over the prior year.
Turning to Financial Services. Our operations continue to face extremely challenging market conditions. In the third quarter, our reported pretax income totaled $28 million, which is down from $49 million last year. In the quarter, lower loan origination volumes driven in part by a lower capture rate and decreased profitability per loan were the primary drivers of the decline in pretax income. Capture rate for the quarter was 77% compared with 85% last year as our mortgage business seeks to be competitive but not to chase unprofitable business.
Our tax expense for the third quarter was $183 million, which represents an effective tax rate of 22.6%. Our taxes in the third quarter include federal energy-efficient home credits which were extended as part of the Inflation Reduction Act that was enacted into law in August of this year. In total, PulteGroup's reported net income for the third quarter increased to $628 million or $2.69 per share.
The company's prior year net income was $476 million or $1.82 per share. In the third quarter, we continued our share repurchase activity, buying 4.4 million shares or another 2% of our outstanding common shares for $180 million or an average price of $41.20 per share. Through the first nine months of the year, we have repurchased approximately 9% of the shares we had outstanding at the beginning of the year for $975 million. Along with buying back stock, we invested $1.3 billion in land acquisition and development in the quarter, of which 56% was for the development of existing land assets.
As Ryan discussed, in response to changing market conditions, we are re-underwriting every land transaction based on current price, pace and cost dynamics. We ended the third quarter with approximately 232,000 lots under control, which is down 11,600 lots from the end of the second quarter of this year due in large part to the deals we elected to terminate. At quarter end, 50% of our total land pipeline was controlled via option and we continue to work toward our long-term goal of getting to 65% to 70%.
While we have terminated a number of transactions, there are land positions that we have under control that we still project to achieve or exceed our required rates of return. As a result, we currently expect to close on such transactions and expect our result in full year land investment to be approximately $4.8 billion, which is in line with our prior guide. Given the change in buyer demand and the resulting impact on the turning of our own land inventory, we currently expect that our land spend will drop materially next year.
While we are still in the planning process, our preliminary estimate is that land acquisition and development spend in 2023 will drop by $1.5 billion to approximately $3.3 billion. Of this spend, we expect that upwards of 2/3 will be for the development of existing land assets. We will provide more details on next year's planned land acquisition and development spend during our Q4 earnings call.
We ended the quarter with $291 million in cash and had $319 million drawn on our revolving credit facility. Our drawings under the revolving credit facility were driven primarily by our land acquisition and development spend, an increase in our house inventories as we move homes through production and the delay in closings related to Hurricane Ian. Our debt-to-capital ratio at quarter end was 22.5%.
Wrapping up the higher interest rates being orchestrated by the Federal Reserve are achieving the Fed's objective in terms of slowing demand and negatively impacting price appreciation in the market. While conditions have gotten tougher, I am confident in PulteGroup's competitive position and in our ability to successfully work through this phase of the housing cycle.
Now let me turn the call back to Ryan.