Lennar Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 15, 2023

There are 13 speakers on the call.

Operator

Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to David Collins for the reading of the forward looking statement.

Speaker 1

Thank you, and good morning, everyone. Today's conference call may include forward looking statements, including statements regarding Lennar's business, financial condition, Results of operations, cash flows, strategies and prospects. Forward looking statements represent only Lennar's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward looking statements relate to matters that have not yet occurred, These statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Lennar's actual activities or results to differ materially from the activities and results anticipated in forward looking statements.

Speaker 1

These factors include those described in our earnings release And our SEC filings, including those under the caption Risk Factors contained in Lennar's Annual Report on Form 10 ks most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward looking statements.

Operator

I would now like to introduce your host, Mr. Stuart Miller, Executive Chairman. Sir, you may begin.

Speaker 1

Thank you, and good morning, everyone. Thank you for joining us this morning. I'm here in Miami and joined by Rick Beckwith, our Co CEO and Co President John Jaffe, Co CEO and Co President Diane Bissette, our Chief Financial Officer David Collins, who you just heard from, our Controller and Vice President And Bruce Gross, our CEO of Lennar Financial Services, there are other executives here with us as well. As usual, I'm going to give a macro and strategic overview of the company. After my introductory remarks, Rick is going to walk through our markets around the country and comment on our land strategy and then John is going to update Construction cost, supply chain and cycle time.

Speaker 1

As usual, Diane will give additional financial highlights and will give some rough boundaries, Not guidance, just foundries given volatility in the market for the Q2 to assist in forward thinking and modeling. And then we'll answer as many questions as we can. And as usual, please limit yourself to one question and one follow-up, So that we can include as many as possible. So let me go ahead and begin by saying that we're pleased to report That the Lennar team has produced strong and consistent results for the Q1 of what is shaping up to be a complicated and volatile 2023. The quarter started in December with traffic and sales stalled, moving only With incentives and price adjustments, we entered January with interest rates declining and energized customer And improving margins and then closed out February with rates again rising and challenging consumer confidence, Although sales remained relatively strong as adjusted prices, traffic was slowing.

Speaker 1

Of course, the quarter ended and the past couple of weeks have added new issues and questions that are reflective of a market That is looking for a bottom and looking for stability. With the Federal Reserve and Federal Government Trying to reconcile the unintended consequences from aggressive interest rate hikes in order to curb inflation, There is simply no way to see around corners and anticipate with certainty what comes next. This is exactly the kind of volatility that our core operating strategy of maintaining volume using incentives and sales price Has been built to endure. With volume and production as our constant and margin as our shock absorber, We manage with certainty through volatility and stay focused on our mission. If market conditions deteriorate, We compromise margin through price and or incentives, but we generate strong cash flow.

Speaker 1

If conditions improve, We improved margin and bottom line, while also generating strong cash flow. Our primary focus is on cash flow. We maintain our volume to move through the limited legacy land that we have, which is at legacy prices, while keeping our production machine working efficiently and rationalizing costs. And the fact that we are projecting a flattish Number of deliveries in 2023 versus 2022 displays the strength of our strategy. Interest rates have continued to be the primary headwind to sales activity as inflation concerns have dominated The Federal Reserve's actions to date.

Speaker 1

At the same time, the housing supply shortage, Especially workforce housing discussed by every mayor and every governor across the country continues to drive customers To stretch their wallet as incentives and price reductions have worked to meet purchasers halfway. Additionally, interest rates have also sidelined the professional or institutional purchasers. Higher capital costs together with higher capitalization rates have made the purchase of single family for rent homes less financially attractive as well. With that said, we still believe that housing that the housing market is beginning to find a point of stabilization and customers, Both primary and institutional are coming to grips with the new normal of higher but acceptable interest rates. The sudden sticker shock of rapidly rising interest rates in 2022 has mellowed And while net prices are lower, incentives are moderating, cancellations have been normalizing lower And margins have been bottoming as cost reductions are beginning to provide an offset.

Speaker 1

As I have said many times in the past, the overall housing shortage remains a dominant theme and is defined by a decade long production deficit in the country after the Great Recession. This deficit will be exacerbated by a growing reduction in housing starts of both single family and multifamily homes brought on by the current housing recession. This shortage Should be a stabilizing factor for the housing market over time. Against this backdrop, We've remained steadfast in our adherence to the strategies we adopted as the Fed began its tightening program approximately 1 year ago. As noted, we've continued to focus on selling homes at market clearing prices, while building at consistent pace to meet the needs of a supply constrained housing market.

Speaker 1

Whether for purchase or for rent, housing shortages are a major concern across the country, As I said, particularly at state and local levels. In spite of higher interest rates driving affordability concerns, More dwellings are needed and our mission is to meet that need. In the first quarter, We saw our margins fall to 21.2%, reflecting sales from prior quarters and adjustments to backlog. While margins fell 360 basis points over the prior quarter and 5.70 basis points year over year, They reflected the use of price reductions and incentives, that is closing cost payments and interest rate buy down, to offset volatile interest rates and market shifts. We used these tools both to sell homes as well as to protect our backlog by adjusting pricing and incentives to ensure closings.

Speaker 1

Our Q1 cancellation rate improved to 21.5%. While this is higher than the 10.2% last year, It is decidedly lower than the 26% last quarter and has been falling in each consecutive month. While our new orders were down some 10% year over year, that result has compared favorably to reported market conditions and enables us to maintain a strong start base that enables us to increase our expected closings for the year to a range of 62,000 to 66,000 homes delivered. On a positive note, Very limited new home inventory exists. Limited existing home supply exists as existing homeowners Hold on to extremely low mortgage rates and very limited multifamily production combined with the chronic housing production shortfall Over the past decade and leaves the industry in the middle of what we believe will be a fairly short duration correction without an inventory overhang to resolve.

Speaker 1

These factors will also extend the runway for longer term housing growth as the correction develops. We derive growing confidence in our ability to achieve sales at the best possible prices From our significant investment in digital marketing, which is more relevant than ever before. We have used our dynamic pricing model in conjunction with our formidable and improving digital marketing platform To continue to drive sales volume at market clearing prices in order to maintain consistent production levels, Our proprietary Digits platform, which we built on a Microsoft backbone, provides digital marketing insights and analytics that guide us to better execution while maximizing pricing using our dynamic pricing model. Our digital marketing team and our dynamic pricing team are getting better and better each quarter And they enable us to refine and improve our execution and effectiveness as we accumulate more data and more experience. Our second strategy was to work with our trade partners to right size our construction our cost structure to current market conditions, While we reestablish cycle time at pre supply chain crisis levels.

Speaker 1

Don will cover this in great detail shortly, But at a high level, we continue to make meaningful progress with our trade partners as they appreciate our long term strategy of maintaining Consistent production. Relative to construction costs, Lennar led the way with reducing with a reduction in margin while maintaining volume and increasing market share as the market has corrected. As our margins have now contracted, We are driving cost reduction participation from our trade partners. Our trade partners are working side by side with us to reduce costs and to keep the production machine working. While there continues to be a lag in those reductions Coming through our reported numbers, in the back half of the year, cost reductions will improve lagging margins.

Speaker 1

Cycle time reductions will also come through in the back half of the year. While cycle time has increased slightly this quarter From 211 days to 2 19 days last quarter, this timing reflects Homes that have been in production for almost 8 months. While we review the front end of construction for homes that have started more recently, We are seeing a 2 week reduction already coming through and we know that will improve over the next quarters. Improved cycle time will improve our inventory turn, which now stands at 1.2 and will help reduce inventory Our 3rd articulated strategy was to sharpen our attention on land and land acquisitions. While Rick will give detail on our land strategy, this has been a specific concentrated area of focus for all three of us, Myself, Rick and John across the platform.

Speaker 1

We recognized early that land would be expensive relative to reduced prices And we therefore stopped the bleeding thoroughly. While we reconsidered every land deal in our pipeline, We have walked from deposits or renegotiated terms and price, and we have been relentless in focusing on protecting cash And only purchasing the next strong margin at today's market pricing. We purchased very little land this quarter as we await better pricing that is more in line with current home sale prices. New land purchases in time will improve lagging margins. Fortunately, we are well positioned with well structured contracts And shorter term deal structures that enable our capital allocation to be managed constructively.

Speaker 1

As with our trade partners, our land partners or sellers understand that we are maintaining volume And increasing market share, while taking the first hit to our own margin. They will need to work together with us In cost reduction, given lower home sales prices, we will just have to move on. Our 4th playbook strategy was to manage our operating costs, our SG and A, so that even at lower gross margins, we will drive a Strong net margin. We've been driving our SG and A down over the past years, quarter by quarter To new record lows and many of those changes, though not all, are hardwired into permanent efficiencies in operations. In our Q1, we were able to marginally improve SG and A to 7.4% from 7.5% last year.

Speaker 1

And we believe if we continue to drive volume, we'll be able to limit increases and manage to advantageous cost levels. Nevertheless, as average sales prices come down, the percentages won't hold without corresponding additional cuts. We also know that in more difficult times, there will be upward pressure on some of our sales and marketing and realtor costs in order to drive and find purchasers and drive new sales. In this regard, the earlier discussion of our intense focus On our digital marketing platform is critically important in offsetting many of these potential cost increases. Our 5th playbook strategy is to maintain tight inventory control.

Speaker 1

This is exactly what drives cash flow And our cash flow machine and we're focusing on this part of our business every day. Both land and home inventory control Our core focus of our overall business and leadership team and in our Q1 numbers, You can see our focus on these elements in our 14.2 percent debt to total capitalization rate, which is down 4 10 basis points from last year's 18.3 percent and our $4,100,000,000 cash position Together with our $2,600,000,000 undrawn revolver, which together provide excellent liquidity and flexibility. High control of land and completed home inventory has enabled cash flow so that our net debt to total capital is actually negative At this point, inventory management is most carefully reviewed and is the most carefully reviewed and managed part of our business And enables us to maintain an extremely low inventory of completed not sold homes, which are consistently Which have been consistently been at or under 1 home per community for the past years. And right now, We have approximately 1300 unsold and completed homes. We are well aware that inventory has remained flat as opposed to lower year over year as one might expect because of expanded cycle time due to the supply chain disruption.

Speaker 1

We also know that this inefficiency We'll correct over the next few quarters and we'll return approximately $1,500,000,000 of inventory and turn it into additional cash. Additionally, a pause in growth this year will reduce inventory and generate additional cash over the next year as well. The 6th strategy is to continue to focus on cash flow and bottom line in order to protect and enhance our already extraordinary balance sheet. With our balance sheet strong, we are able to complement Strong operational execution with stock repurchases and debt reductions that improve total shareholder returns And return on equity. As we continue to execute our strategies, we will continue to drive strong cash flow and bottom line profitability.

Speaker 1

And even though bottom line profitability will be compressed year over year, as prices and margins are impacted in a correcting market, Our balance sheet and our cash position will continue to improve. This improvement enables the flexibility to be opportunistic as market conditions stabilize. Finally, we have added an additional strategy, An additional core strategy since last quarter end. This is a strategy of continuous improvement focus Throughout the company, although it seems obvious and perhaps a little trite, we have created a central focus On continuous improvement metrics for every leader in our company with a direct tie to performance measurement and bonus structure. Last year, we recruited a new CHRO with specific expertise in this area and we've developed a determined and constructive program of engagement and measurement across our platform.

Speaker 1

Welcome aboard, Drew Holler. Now that he has been with us for about 6 months, I wanted to formally welcome Drew to the company on our earnings call and let him know formally that we, meaning we, Rick, John and all of our shareholders expect really exciting improvements that will help Lennar continue to reach higher And drive harder to be the best version of ourselves. So in conclusion, It seems that the homebuilding industry has been skating on a very thin edge between some very strong headwinds And some equally strong tailwinds that have required careful navigation and refined adjustment along the way. The headwinds have been defined by Federal Reserve Driven Interest Rate Increases Driven by Stubbornly High Inflation. The consumer has attempted to adjust.

Speaker 1

The tailwinds have been defined by housing shortages across the country as well as production deficits over the past decade. And while the consumer remains challenged by affordability concerns, They are adjusting to the new normal of higher interest rates and opting to purchase their homes. In these extraordinarily difficult and volatile market conditions, the Lennar team has focused on strategy and we have executed with precision. We ended the Q1 with stronger than expected revenues and closings, strong profitability and cash flow, A fortified balance sheet and strong liquidity. We have a plan of execution to continue to navigate the uncertainties Of 2023 with a focus on maintaining volume, maximizing margin, managing inventories, driving cash flow, Managing land and land spend and further enhancing our balance sheet in spite of the challenging market conditions.

Speaker 1

Accordingly, we are not guiding, but giving some broad boundaries for our 2nd quarter closing to between 15,000,016,000 homes With a gross margin, we expect between 21% 21.5%. Additionally, We are targeting delivery volume for the full year to be between 6,200,000 66,000 homes as we drive volume And pick up market share and build margins back up through reconciliation of construction and land costs, while carefully managing SG and A. While we're prepared for volatility and adversity along the way, We will stick to our focus on our core operating strategies in order to perform as expected. Simply put, that's what we expect of ourselves And we hope in the process, we will continue to earn your trust and respect. Thank you.

Speaker 1

And with that, let me turn over to Rick, who's going to walk through a review of our market conditions across the platform.

Speaker 2

Thanks, Stuart. As you can tell from Stuart's opening comments, the overall housing market has continued to be impacted By higher mortgage rates, which has impacted affordability and homebuyer confidence. While some of our markets are performing well, In most of our markets, we've had to adjust base prices, increase incentives and or provide mortgage rate buy downs Maintain or regain our targeted sales base. Our strategy has been to maintain our targeted sales base, continue to sell homes and adjust our pricing to reflect market conditions. With this strategy, we have sacrificed gross margins to generate sales.

Speaker 2

Match sales with starts, we've used our dynamic pricing model to continuously find the market clearing price Each of our homes on a community by community basis as quickly as possible. We fundamentally believe that our price to market strategy Reflects our balance sheet first focus where we can maintain starts and sales, generate cash flow and keep our homebuilding machine going. To this end, John will discuss the operational and cost benefits of maintaining our start pace. Our Q1 results reflect the successful execution of our price to market strategy. During the Q1, our new sales orders declined 10% from the prior year.

Speaker 2

These results, as Stuart mentioned, compare very favorably to competitor and nationally reported results. We did see improvement during the Q1 as new sales orders increased sequentially from the 4th quarter And in each month of Q1, with our February 2023 sales pace per community totaling 4.7 sales, Just 0.1 sale lower than our sales pace in February 2022. Our cancellation rate declined from 26% in the 4th quarter to 21% in the 1st quarter with sequential improvement in each month of the quarter. In fact, Our cancellation rate in February was 14%, much below our normalized cancellation rate. Our cancellation rates have benefited From the flawless execution of our financial services group in both finding the right mortgage product and locking mortgage with our homebuyers.

Speaker 2

Our new order sales price in the Q1 totaled $452,000 up 8% from the 4th quarter with mix Primarily pushing our average sales price higher, sequentially, we saw a slight improvement and a reduction in our incentives, which was partially offset by lower base prices. We've been able to achieve small sequential monthly reductions in incentives During our Q1, without impacting sales base, this trend has continued into the 1st 2 weeks of March. Notwithstanding a spike in interest rates in late February and continuing into the 1st 2 weeks of March, our sales cancellation rates have maintained and we feel we have established market pricing and sales pace stability across our footprint. Now I'd like to give you an update on our markets across the country. In prior quarters, I had 3 categories: 1, markets that are performing well 2, markets where we've adjusted pricing and incentives, found the market price And have successfully regained sales momentum.

Speaker 2

And 3, markets that require additional pricing adjustments, incentives and focus to regain our targeted absorption pace. While our strategy has resulted in lower gross margins across the platform, The good news is that for now, we have no Category 3 markets. During the Q1 and so far in March, We had 10 markets that are performing well. These are Southeast Florida, Southwest Florida, Tampa, Palm Atlantic, New Jersey, Philly Metro, Charlotte, Coastal Carolinas, Indy and San Diego. These markets are benefiting from extremely low inventory And many are benefiting from strong local economy, employment growth and in migration.

Speaker 2

While these markets have continued to perform well, We have had to selectively offer mortgage buy down programs and normalized sales incentives. Some communities in these markets have required Targeted price adjustments, but those are in the rare case. Our Category 2 markets, which reflect markets where we've made more significant adjustments And have successfully regained sales momentum include 29 markets. These include Jacksonville, Ocala, Orlando, Gulf Coast, Northern Alabama, Atlanta, Raleigh, Virginia and Maryland, Chicago, Minnesota and Nashville, All the markets in Texas, including Austin, Colorado, Phoenix, Tucson, Las Vegas and the rest of California, Pacific Northwest, including Portland, Seattle, Utah, Reno and Boise. While inventory is limited in each of these markets, We have had to offer more aggressive financing programs, base price reductions and or increased incentives to regain sales momentum.

Speaker 2

Size of the adjustments is varied on a community by community basis and has often been limited to specific homes each week. In some cases, to avoid cancellations, we've adjusted pricing on our homes and backlog. We've been very proactive with our pricing and not reactive. This has allowed us to sell homes and avoid building up finished inventory. In all of our Category 2 markets, we've seen base prices stabilize.

Speaker 2

In a handful of our Category 2 markets, we've been able to increase our net sales price, primarily by reducing incentives And to a lesser extent by raising base prices. Markets remain very fluid and we're making proactive strategic decisions and adjustments every day. As Stuart said, we're committed as a management team to address any future market changes quickly. As we said in the past, We're going to keep our homebuilding machine going, maintain our sales and start pace and price our homes to market. This is our balance sheet's first focus.

Speaker 2

Before I turn it over to John, I'd like to discuss our land life strategy and community count. Much of our balance sheet and inventory management progress Was driven by the execution of our land strategy, while simultaneously driving sales, delivery and managing production. Quarter after quarter, we've worked with our strategic land partners and land banks to develop relationships for them to purchase land on our behalf And deliver just in time finished home sites to our homebuilding machine on a monthly and quarterly basis. In the Q1, about 90% of our 12,000 home sites were purchased or finished home sites from our various land structures. We have continued to make significant progress on our land life strategy.

Speaker 2

This was evidenced at the end of our Q1 Our year's supply of owned home sites improving to 1.9 years from 2.7 years and our controlled home site percentage increasing to 68% from 63% year over year. We've also focused on increasing our community count to drive future growth. Our community count increased 1% to 1217 communities at the end of the Q1 from the year ago period, and we expect to increase our Community count in the high single digits from the Q1 by the end of the fiscal year. Given our development timelines, The bulk of these communities will come on in our Q4. Now I'd like to turn it over to John.

Speaker 3

Thank you, Rick. You've heard from Stuart and Rick how we remain focused on finding market community by community to maintain sales pace. Accordingly, This does enable Lennar to keep our production machine moving forward with starts. We continue with our stated construction strategy with being a production first homebuilder, Keeping starts consistent and then matching sales space to establish starts space to effectively manage inventory. This resulted in ending our Q1 With only about one inventory home per community.

Speaker 3

To remind you, our construction playbook has 3 primary areas of focus: lowering construction costs, Reducing cycle time and achieving even flow production. By executing this playbook, we believe we can maximize financial results in all market conditions. Let me address each area. As we noted last quarter, the speed of change in market conditions has caused a sharp reduction in industry wide starts and permits. This is evident in the nationally reported starts in permit activity over the last 3 months with November, December January starts Down year over year at 34%, 27% and 27%, while permits were down 30%, 35% and 40% respectively in the same year over year period.

Speaker 3

Decline in starts and the drop in permits, which are a proxy for a further drop in future starts As already, it will continue to free up the availability of labor and material. Looking at our Q1, As expected, construction costs fell sequentially from Q4 by about 1%. This was driven primarily by the reduction in lumber costs from last summer Going through our deliveries, partially offset by increases in cost in most other categories. Year over year construction costs rose by almost 13%, reflecting the elevated cost environment for home constructions for home started in 2022 versus 2021. Importantly, in our Q1, we continue to make progress working with our trade partners to reduce the cost of labor and materials.

Speaker 3

Additionally, we have now evaluated all of our product lines for appropriate specification changes and we maintain an ongoing value engineering review Processed across all of our divisions. As I've already noted, there's been a significant slowdown in starts in Permica in the industry and our trade partners feel this firsthand. We continuously meet with them to communicate our strategy of maintaining our start space, which they greatly appreciate. They also understand the steps we have taken to sacrifice your margin In order to keep our sales pace and to support our volume. In churn, they have partnered with us to lower our construction costs as they know we are helping to keep them and their businesses financially They understand the mission and are on board to help us make it happen.

Speaker 3

We expect to start seeing these savings begin to flow through our 2nd quarter closings, which are factored into our margin guidance. Last quarter, I communicated we had identified about $14,000 per home and construction cost savings, which will flow through our closings in the back half of the year. We have now contracted these cost savings and continue to make progress on identifying additional savings, while at the same time managing through an environment where certain material costs are impacted by inflationary pressures. Potential future headwind to cost savings is lumber As a combination of reduced supply from the mills and minimal inventory quantities throughout the distribution channels sets up for the potential for small price rally Come under further pressure again. Cycle time is the second area of focus for our construction strategy.

Speaker 3

As Stuart noted, our closings in the Q1 saw extended cycle times Those homes were impacted by the supply chain challenges in the second half of twenty twenty two. For the quarter, cycle plan increased 14 days in 8 days year over year and sequentially respectively. As we move into the Q2 and beyond, we will continue to close more of the homes started last year, which were heavily impacted by supply chain disruptions, eliminating those longer duration homes from our inventory. Our cycle time will also benefit from the greater availability of material and labor due to the significant reduction in housing starts. As we've previously discussed, our overall cycle time increased about 2 months from pre pandemic condition.

Speaker 3

The bulk of this affected the front end of construction as there are fewer opportunities to build out a sequence at the front end as compared to the back end. For example, we can't put on the roof without the walls, but we can install toilets without the windows. There's been significant improvement in recapturing of time at the front end. By the end of our Q1, we have reduced front end cycle time by over 2 weeks from our peak. Currently, we are at a pace of improving cycle time by a few days each week.

Speaker 3

We will have to wait and see how long this trend can be maintained or potentially even approved upon. This will depend on some lingering supply chain issues such as transformers, labor remaining in the workforce that start to decline and appropriate staffing levels at municipalities. Reducing our cycle time over the next few quarters will free up a significant amount of cash that is tied up in our inventory, further strengthening our balance sheet. The 3rd area of focus is Evenflo production. Prior to the pandemic and its related supply chain disruptions, Evenflo production was a core focus for us.

Speaker 3

Evenflo properly executed needs consistent completions throughout the months and quarter. Consistent starts and completions Allow both Lennar and our trade partners to be staffed for the average versus the peaks and avoiding efficiencies at the Valleys. This drives skill and G and A efficiencies for both the trades and Lennar. While we are not there yet, as we look forward to our planned deliveries for each month of Q2, we can start to see a return to even flow. These strategies are an intense focus, everyday focus of the entire company.

Speaker 3

Everyone at Lennar involved in operations and purchasing Our focus on every single day on lowering costs, reducing cycle times and achieving even slow production. I would now like to turn it over to Diane.

Speaker 4

Thank you, John, and good morning, everyone. Stuart, Rick and John have provided a great deal of color regarding our homebuilding performance. So therefore, I'm going to spend a few minutes on the results of our financial services and Lennar other segments in our balance sheet and then provide high level boundaries for Q2 2023. So starting with Financial Services. For the Q1, our Financial Services team operating earnings of $78,000,000 Mortgage operating earnings were $59,000,000 compared to $67,000,000 in the prior year.

Speaker 4

The decrease in earnings was driven by lower lost volume, primarily as a result of the decline in the average sales price of our homes. Title operating earnings were $23,000,000 compared to $21,000,000 in the prior year. Title earnings increased primarily as a result of Higher volume and a decrease in cost per transaction as the team continues to achieve efficiencies through technology. These solid results were accomplished as a result of great synergies between our homebuilding and financial services teams as they successfully executed together through Challenging market. So then looking at our other segment for the Q1, this segment had an operating loss of 41,000,000 The loss was primarily the result of non cash mark to market losses on our publicly traded technology investments, which totaled $24,000,000 And then turning to our balance sheet.

Speaker 4

There is a constant drumbeat at Lennar to be laser focused on returns and on cash flow. This quarter, we were unwavering with our determination to turn our inventory and generate cash by pricing homes to market to deliver as many homes as possible. The drumbeat continued with our determination to preserve cash and increase asset efficiency by continuing to be judicious about land purchases, Acquiring primarily finished home sites where vertical construction will soon begin. The results of these stead Our best strategies was that we ended the quarter with $4,100,000,000 of cash and no borrowings on our $2,600,000,000 revolving credit facility as we've noted. This provided a total of approximately $6,700,000,000 of homebuilding liquidity.

Speaker 4

Given our continued focus on balance sheet efficiency, We enhanced our goal of becoming land lighter. At quarter end, we owned 125,000 home sites and controlled 264,000 Homesites for a total of 389,000 Homesites. Our years owned improved to 1.9 years from 2.7 years in the prior year and our home sites controlled increased to 68% from 63% in the prior year. We believe this portfolio of home sites provides us with a strong competitive position to continue to grow market share in a capital efficient way. During the quarter, we started about 13,300 homes and ended the quarter with approximately 36,500 total homes in inventory, of which about 1300 were completed unsold as we successfully manage our finished inventory levels.

Speaker 4

Consistent with our commitment To strategic capital allocation, we repurchased 2,000,000 shares totaling about $189,000,000 Additionally, we paid dividends totaling $108,000,000 And then looking at our debt maturity profile, our next Senior note maturity is $400,000,000 which is due in fiscal 2024. We continue to benefit from our pay down of debt. You may recall that we've repaid about $5,400,000,000 of senior notes, which equates to about $300,000,000 in interest savings. Combined with strong earnings, our homebuilding debt to total capital was 14.2% at quarter end, our lowest ever, which was an improvement from 18.3% in the prior year. And just a few final points on our balance sheet.

Speaker 4

We remain committed To increasing shareholder returns, our stockholders' equity increased to $24,000,000,000 our book value per share increased to over $84 Our return on inventory was approximately 31% and our return on equity was approximately 21%. In summary, the strength of our balance sheet, strong liquidity and low leverage provides us with significant confidence and financial flexibility as we move through 2023. And with that brief overview, I'd like to turn our thoughts to Q2. It continues to be difficult to issue the targeted guidance that we have historically provided given the volatility in market conditions. So as Stuart mentioned and as we did last quarter, we're providing very broad ranges to give some boundaries for each of the components of our 2nd quarter.

Speaker 4

So let's start with new orders. We expect Q2 new orders to be in the range of 16,000 to 17,000 homes and expect our Q2 ending community count to be flat to slightly up year over year. We anticipate our Q2 deliveries to be in the range of 15,000 to 16,000 homes and our Q2 average sales price should be in the range of $435,000 to $445,000 as we continue to price to market. We expect gross margins to be in the range of 21% to 21.5 percent and we expect our SG and A to be in the range of 7.2% 7.4%. And for the combined homebuilding, joint venture, land sale and other categories, we expect to have earnings of about $10,000,000 We anticipate our financial services earnings for Q2 to be in the range of $70,000,000 to $75,000,000 and we expect a loss of about $20,000,000 for each of our multifamily business and the Lennar Other category.

Speaker 4

The Lennar Other estimate does not include any potential mark to market to our technology investments since that adjustment will be determined by their stock prices at the end of our quarter. We expect our Q2 corporate G and A to be about 1.6% to 1.7% of total revenues and our charitable foundation contribution will be based on $1,000 per home delivered. We expect our tax rate to be about 24.5% And the weighted average share count should be approximately 286,000,000 shares. And so when you pull all that together, these estimates Should produce an EPS range in between $2.10 to $2.55 per share for the 2nd quarter. Finally, once again, given market volatility, we're providing boundaries for deliveries only for full year 2023 as we did last quarter.

Speaker 4

Stuart mentioned, this delivery range should be 62,000 to 66,000, which is an increase of our previous range of 60,000 We look forward to giving another update on our next earnings call. And with that, let me turn it over to the operator.

Operator

Thank you. We will now begin the question and answer session of today's conference call. We ask that you limit your question to one question and one follow-up session. And our first question will come from Stephen Kim from Evercore ISI. Please go ahead.

Speaker 5

Yes. Thanks very much guys. Super interesting times and very impressive results. Wanted to ask a first question, if I could, about your commentary and your guidance on orders. So I think you indicated that your February absorptions were running at 4.7 sales per community.

Speaker 5

Your order guidance for 2Q seems to imply something less than that. I was curious why that is and Because we usually see, if anything, the absorption is higher in the Q2 than in the Q1. And if demand exceeds What seems to be implied in your order guide? Would you expect that we might see that excess show up in a higher margin or greater starts?

Speaker 1

We're struggling as to who should answer that question. Steve, it's John.

Speaker 3

I think our view as you heard is that we found stability in the market as we've made We think of the approach to appropriate adjustments to achieve a pace. It's really at a pace that as I define and then my Discussion points, it matches our start pace. And so it's a managed community by community, market by market Sales pace, we think it's very healthy as you look at it relative to year over year And the current market environment.

Speaker 1

I think it's most important to recognize Steve that when you look at The overview, the overall numbers, they might not match up perfectly with the fact that we are Managing our business and managing each of these numbers from a community by community base on a Community by community basis. And it's really a roll up of exactly what's happening in the field in each community. And so you're going to see some anomalies in the numbers. Your question as to whether if demand is stronger, We're going to see that reflected in higher volume numbers or higher margins. And it's really The answer to that is really going to be about optimizing to both.

Speaker 1

We will with greater demand see some Greater volume, but additionally, that greater demand will express itself through our dynamic pricing model and the ability to garner a higher sales price and margin.

Speaker 3

Additionally, one more thought on that and that is, As you know, we really have a very well controlled inventory position, not a lot of unsold homes in front of us are current. So we're very disciplined about not getting too far ahead in sales. We could potentially open that up some more. But we find Very effective use of mortgage rate buy downs, which tend to lend to a shorter cycle duration in terms of how far out we're selling.

Speaker 5

Yes, that's exactly where I was going to go next. So thanks for that segue. So I know you have this dynamic pricing model. One of the things that we've Really noticed recently and I'm curious if you have as well, is that homebuyers seem to prefer QMIs Much more even than they did quick move in homes, than they did in the past. And so, I would Imagine that you could probably actually reduce the level of incentives that you need to offer as your spec homes near completion, Which is something very different from the way things were in the past.

Speaker 5

And so I'm curious, is that true? Are you finding that you can Reduce incentives as your specs get further along the construction process. And has your dynamic pricing model adjusted to reflect that change?

Speaker 2

So Steve, it's Rick. We have seen that our homes as they're getting close to completion or being completed that They get premium pricing. That's why we continued with our production strategy to keep homes coming off The conveyor bills, if you will. And as I mentioned in my commentary, that's reflective of the lowering of incentives on a monthly basis, Really on a weekly basis since for the last 6, 8, 10 weeks, we've been able to lower the amount of the incentive. That's why we're keeping our start cadence going.

Speaker 2

And just going back to your sales pace question, Sales pace for the Q2 is really in the mid-4s. And if the market improves, we can definitely push that. But that's sort of the middle of the fairway type of projection.

Speaker 1

I do think it's important to note that last night, I finished writing my remarks and talked a bit about volatility in my remarks. Little did I know that this morning I'd wake up and see Even increased volatility. I say that as an overlay to all of the discussion around numbers looking forward It has to be looked at in the context of very strange and moving market conditions.

Speaker 5

Yes. Thanks very much, Stuart. Appreciate that. And we will take the 3.4% 10 year yield though too this morning.

Speaker 1

Absolutely. We'll see what the other numbers look like.

Speaker 3

Okay. Thanks.

Operator

Next, we'll go to the line of Alan Ratner from Zelman

Speaker 6

and Associates. Please go ahead.

Speaker 7

Hey, guys. Thanks for taking my questions and all the great color so far. First, just I was hoping to reconcile a little bit of Stuart and Rick's comments earlier, just as far as kind of the late February, early March activity and how that pertains to the overall pricing strategy. Rick, I think I heard from you that, at least in your opinion, sales have remained steady here through the 1st couple of weeks of March and Not to parse too finely between weekly data, but Stuart, your comments were that you did see a little bit of a tick lower in late February From the higher rates and obviously that's rearview mirror now, but now the banking headlines are taking over. So I guess I'm just curious, A, can you reconcile those comments?

Speaker 7

And B, given that you think pricing has kind of found a market clearing price, so to speak, if orders were to fade a bit, At what point would you get more aggressive on incentivizing again or adjusting prices to bring that sales pace up?

Speaker 1

Well, the answer to your last question is every day. We're looking at pricing on an everyday basis in each community. It's a very granular assessment. To reconcile what I said about the end of February, At the end of February, interest rates started moving dramatically in a different direction. And we definitely saw Direct impact in traffic levels.

Speaker 1

We were intrigued to sit watch as we went from February into March That our sales pace remains relatively strong. There are a number of ways to read that information, But we a big part of our read is the fact that we have kind of Entered into a world of a new normal relative to interest rates, the sticker shock of the rapid change It's subsiding. It doesn't mean it's gone away. But at the same time, Interest rate movements are not disrupting sales as they might have 6 months or 9 months ago. And we are able to find and keep in touch in step with interest rate movements and That intersection between the discounting that we might have to do, the incentives we might have to give and the consumers' affordability assessment.

Speaker 1

So all of those are in play on a regular basis. And as we came to the end of February, We definitely saw an impact on traffic, but not really much of an impact on sales. That's anomalous.

Speaker 3

No, it's John, I think there's a connection of the point that Stuart made and that is as interest rates went up, we pulled on the lever of mortgage rate buy downs To keep our customers who were in the queue moving forward with their purchase decision. That's I think part of why we didn't see An impact to our sales, while we're seeing an impact to our travel.

Speaker 2

Got it. And again, the final comment I'd make is, We did see stability going into the 1st 2 weeks of March. Didn't see much variation in the Aggregate number of sales in the 1st 2 weeks, incentives ticked down and cancellation rates really stayed in that stable For the 2 weeks prior and really the month of February.

Speaker 7

Appreciate that. That's all really helpful. 2nd, I know it's early and this can kind of take a lot of different directions here. But given the uncertainty in The regional banking sector today, on one hand, you guys and the other publics are at a huge advantage over private builders Given your long term debt and the balance sheets, the strength that you have. But if you think about the industry more holistically, it's so reliant on Debt financing from the regional banks that may be coming up to a tougher period here in the near term, Which could result in some tightening, whether it's on AD and C financing or build for rent purchases, anything that kind of utilizes that capital.

Speaker 7

So maybe this one's best for Stuart. How do you see this playing out if there are any headwinds or tightening that might occur? And how could that impact Your business even if you do have that competitive advantage from a capital perspective.

Speaker 1

So Alan, your question is a really important one I don't think there's a clean, clear answer to it. And I was very intentional in my comments, I use the words unintended consequences. There are so many of them Just swirling around out there and I'm not sure how they're going to shake out. You're absolutely right that the community banking and regional banking system It's a support structure for the broader housing market, whether it's the smaller builders or all the way through the system. The SFR buyers are going to feel the ripple of not only cost of capital, but also capitalization rates.

Speaker 1

There's going to be movement upward, there's going to be movement downward. And how it shakes out is going to be something that we'll be very tuned to. But the landscape is going to shift unintended consequences are not we're not going to be able to see around those corners. And I think we've seen that

Speaker 8

in

Speaker 1

Many ways over just the past few days, the unexpected has happened And we've just had to think about how we deal with it, whether it's over the weekend or whether it's over last night. So it's important to daylight that there are these things out there that are going to have some ripple effects and we'll all have to just sit and see How we deal with them? I hope that I laid out well in our commentary that our Strategic focus is taking into account the volatility, The unexpected and recognizing that we're going to stay very close to the market on a community by community basis And use our dynamic pricing model, digital marketing platform to keep the production machine moving and That will impact both sales prices and margins.

Speaker 7

Okay. That's Scott Stuart. Thanks

Speaker 2

again. Sure.

Operator

Next, we'll go to the line of Susan Maklari from Goldman Sachs. Please go ahead.

Speaker 6

Thank you. Good morning, everyone.

Speaker 2

Good morning.

Speaker 6

My first question is going back to the dynamic pricing model, you mentioned in your comments that you are Constantly refining and improving that process. Are there any specifics that you can give us around that? And especially Given the volatility that we've seen in rates over the last couple of months, how has that helped you to adjust on the ground and giving you the Confidence to give us those guidance or those boundaries for your 23 closings of 62,000 to 66,000?

Speaker 3

Hey, Susan, it's John. Our dynamic pricing model really gives us a very clear view of the different elements That go into pricing home and associated incentives, mortgage buy downs, base pricing, premiums, etcetera. So We've evolved that product through these market conditions. We've developed additional tools within dynamic pricing They give our operators that view of what's happening on a plan by plan, community by community basis where they can track week over week Changes in base pricing, incentives, etcetera, and stay very much on top of sales pace, what's needed and what is having the biggest impact On driving results.

Speaker 1

As well as the competitive landscape. Yes. All of the components of what's happening in the market is Being ingested into our dynamic pricing model and it is giving in graphic form our operators a clear view What's happening in their market, backward looking and forward expected. And it's really the ingestion of data, the backward testing And the ability to accumulate more information that is dependable, that we where we Build an understanding as to what it means that helps us come up with pricing that is actionable In the field on a market by market basis. And probably the most interesting thing that has taken place over the last 6 months Is a better understanding of how to look at our underperforming assets, meaning the communities that are not performing Up to par.

Speaker 1

It's easy to focus on the communities that are doing quite well and harder to focus on the ones that might be lagging and across a platform that's 1300 communities coast to coast. It's important to 0 in on those that are underperforming and see what it takes to get Them moving in the right direction, that's what our dynamic pricing model is all about.

Speaker 2

It also allows us to identify the ones that are Performing well from sales pace, but that need pricing adjustments to the upside because we're not maximizing the value of the opportunities.

Speaker 3

And since remember the foundation that really enables our fed amortizing model to work is we have a set start pace And we're trying to land on a sales pace that ties into and matches that start pace. So we know where we want to land, then the enterprising helps us navigate Make sure that we land on the spot that we want to.

Speaker 6

Yes. Okay. That's all very helpful. And then, turning to the balance sheet, You've got probably the strongest balance sheet you've ever had, especially given the operating conditions right now. Historically, when we've gone through periods of slowdowns or the global financial crisis, you've been able to leverage certain opportunities to drive long term growth.

Speaker 6

Obviously, it's really hard to know how things will come together this time, but what are some of the things that you're looking out for? Where do you think there could be opportunities to take advantage of? And how are you thinking about investing in long term growth relative to say shareholder returns or other uses of the balance sheet?

Speaker 1

So Susan, let me say emphatically that our primary focus is on organic growth. We are not really looking outside at strategic opportunities and being opportunistic in a kind of traditional sense. We are and I've said this many times before, we are focused on being a best of breed Homebuilder manufacturer with an asset light program. We're going to be focused on generating cash, paying down debt, buying back stock Where opportunistically we can and should, and we're not really looking outside the boundaries. We think that the opportunity to continuously improve, as I said, continuous improvement is a serious mantra around here.

Speaker 1

Continuously improved is the biggest opportunity that we have and we are refining all of the levers of our company Down to or up to the actual operators that run the business across the board, It's continuous improvement internally focused. And that opportunistic skill set that we clearly have It is not our primary focus right now. The strength of our balance sheet is not enabling us to meander our thinking. We're staying very focused on running our business and refining it. And that asset light componentry continues to be Right in the crosshairs of what we're focused on, how do we systemically build a land strategy that is complementary A landline programming that enables us to execute well and to grow for the future.

Speaker 2

I think consistent with that, On the margin, the opportunities that might come on individual community by community basis is if things On a regional level with the smaller builders, smaller developers where they need capital, We can put that in one of our land vehicles.

Speaker 6

Okay. That's very helpful. Thank you and good luck.

Speaker 1

Thank you.

Operator

Thank you. And our next question comes from Truman Patterson from Wolfe Research. Please go ahead.

Speaker 3

Thank you. Actually, this is

Speaker 9

Paul Przybylski. First question, your order ASP increased 3% to 7% quarter over quarter On a regional basis, you did mention that was pricing power, but I can't imagine pricing power drove all that. Was it more the balanced Product or geographic, submarket mix, etcetera? And then following on that, what percent of your communities have actually Come off the bottom in order pricing.

Speaker 2

So as I said in my Comments, most of the price increase between Q4 and Q1 was really mix of products, With some incentive reductions, so that was the primary impact Between Q4 and Q1? As far as the percentage of communities, Not sure we have that right now.

Speaker 3

Okay. Okay.

Speaker 9

All right. Well, and the second question, your Q1 gross margin came in a little bit above guidance. The midpoint on 2Q is basically flat. And last quarter, you mentioned that you thought 1Q would kind of be the low point For the year, do you continue to believe that the second half of twenty twenty three will see higher margins relative to the first half?

Speaker 1

Generally, we do I do want to just correct one term and that is that term guidance. We've used the word boundaries. I know there's a subtle difference there, but we are trying to get some boundaries, but we do recognize that the world is Working a little strangely these days. With that said, we do feel that our margins Should be better in the back half of the year as some of our cost savings and work with our building partners Kind of start to flow through. Remember, there's a lag in what we're able to engage with our building partners And what actually the timing of which is actually flows through our numbers.

Speaker 1

But we are anticipating that the second half should be a little bit stronger, assuming that conditions in the market don't Radically move in a different direction.

Speaker 7

Great. Appreciate it. Thank you. Sure.

Operator

Thank you. And our next question comes from Carl Reichardt from BTIG. Please go ahead.

Speaker 10

Thanks. Good morning, everybody. Stuart, you talked about turns at 1.2 times, inventory turns. So if you think about like selling at a normalized pace for Lennar, Getting back to normal cycle times and optimizing the landline program in hunky dory world, where do you think those inventory turns can go?

Speaker 1

So we've spent a lot of time thinking about this, Carl. We think it's a very important metric for us. And I'm not prepared to make that prediction, but I want to say that it is very much At the center of our thinking and there are some crosscurrents right now because of the reconciliation Of supply chain disruption and some of the holdovers and the reconciliation of that supply chain disruption, Getting our cycle times back in line will be a factor in the answer to that question. And let's leave the answer Another day, but just understand that it's very much part of the focus of our management team.

Speaker 10

Okay. I had to take the shot at least. And then on Corteva, obviously, you postponed that. What are the conditions necessary do you think to actually get that business spun under the assumption that you still intend to do that. Thanks.

Speaker 1

I'll answer it in the negative and say not the conditions that we've seen unfold over the past couple of weeks. We are Look, there's as I said last quarter, the markets are moving and the financial markets Have created complications. Since that last quarterly call, I would say that the capital markets have become even a bit more complicated. This is just not the time for us to be taking For Terra, to the market, I think that we're going to wait and see and look for the right opportunity to do the next right thing for the company. And I want to leave that as an open item as well.

Speaker 1

I feel like I'm not answering your questions, Carl. It's not like me.

Speaker 10

That's quite all right. I appreciate all the color guys. Thanks so much.

Speaker 1

Okay. You bet. We have time for 2 more, please.

Operator

Okay, absolutely. Our next question comes from Mike Rehaut from JPMorgan. Please go ahead.

Speaker 11

Hi, good morning. Thanks so much or I guess good afternoon now. The first question, I just wanted to circle back to, I believe it was John's comments That $14,000 of savings per home that you feel like you've been able to achieve, I guess, maybe over the last, I don't know, call it 3 to 6 months. That against your Q2 closing ASP, that's a little over 300 basis Points of margin improvement. So I'm just trying to think about You mentioned earlier about still expecting some amount improvement in the second quarter and I'm sorry, 2nd half gross margins provided the pricing and incentive backdrop remain relatively stable.

Speaker 11

It seems like you're a little more hesitant to kind of say, okay, back half gross margin is up by 300. Are there other things that we should be considering that would offset that? Is this more of a fiscal 2024 event? Just trying to think about those savings and how they might flow through in the back half.

Speaker 1

So Mike, Before I let John comment, let me just say that you hit the nail on the head. I think that it's the general volatility that is sending up Caution flag that, yes, you're correct. We are working every day on Expanding that number to a larger number, and it is not static. And If you just look at numbers, your assessment is correct. But with that said, we're leaving room for volatility to run its course.

Speaker 1

We recognize that even things within the cost numbers are moving around, Whether it's lumber costs moving down and then moving back up, whether it's other components. So the answer is, yes, we're leaving some room for other elements of volatility to express themselves as well. Go ahead, John.

Speaker 3

Yes. So relative to Q2, as I mentioned, you've just seen the very beginnings of that because there is that time lag that Stuart addressed a moment ago. We put something under contract today, it affects homes we start tomorrow, which deliver, call it, 6 months from now. But if you have that timing cycle, We do have a likelihood that lumber does move up some. We are battling, for example, aggregates and concrete As a headwind, there is a constant energy efficiency That goes on, that affects our manufacturers.

Speaker 3

So just give and take in that, and that's why I said we feel comfortable with what we have put under contract so far. But it's all about. And so you shouldn't do the math where you apply 100% of that because there will be offsets.

Speaker 11

Okay. That's very helpful. It makes sense. I guess, maybe even Increasing the focus to the second quarter instead of the second half, we're getting along with even shorter term. You guided to roughly flat gross margins in the second quarter versus the first.

Speaker 11

And What struck me on that guidance is that at the same time you've been talking about during the call incentives, I think Rick kind of referred to incentives declining over the past, I think I heard 6 to 10 weeks. And maybe there was a little bit of a bump up in the end of February, but then a bump down, I guess, In March, why wouldn't we see a little bit of that in the second quarter In terms of the gross margins and again, is there any offset there? Or is this more of a 3Q, 4Q type of benefit?

Speaker 2

I think it's more of a Q3, Q4 type of benefits. But if you look at our guidance, we've pushed up 21.5%, which incorporates some of that improvement. And the thing you need to think about incentives is, incentives is one Part of the equation, the base price is another and occasionally we have to adjust base prices down Because ultimately, we're really focused on net pricing. So we will feel that we will get Benefit from the reduction in incentives and net pricing as we move through the year. So we're at the beginning stages of really Stabilized markets and making improvements as volume and traffic change.

Speaker 1

Bottom line is there are a lot of moving parts in all of this, Mike. And

Speaker 2

The way it plays out over

Speaker 1

the quarter, especially in the near term, it's The moving parts are all going to work together and we're going to roll it up. So you're seeing the injection of Some rational conservatism to just make sure we're including the volatility in the market that is moving things all around.

Speaker 11

Great. Thanks so much.

Speaker 1

All right. Last question, please.

Operator

Thank you. Our final question comes from Matthew Bouley from Barclays. Please go ahead.

Speaker 12

Good afternoon. Thanks for fitting me in. So one follow-up on everything going on around the banking system. You laid out some sort of broader industry thoughts there. And I very much recognize this is very fluid, but just kind of pertaining to your own mortgage business, you kind of lay out or unpack Kind of as you guys go through the process of selling loans to the secondary mortgage market, do you have any exposure to the regional banking system there?

Speaker 12

And just any sort of higher level thoughts on how all this may impact lending standards and all that? Thank you.

Speaker 1

I'm going to let Bruce chime in on that. Nice to hear you this morning, Bruce.

Speaker 8

Nice to be here. Good morning. With respect to sales of Loans to investors, we have the agencies that we sell to and other parties that are not regional banks. Some of those investors did have financing from regional banks. We're paying very close attention to that, But no disruption.

Speaker 8

And the backdrop is we could always sell it to the agencies. So we feel very good about Our warehouse lines are primarily the big commercial banks, So very little regional bank component with the warehouse line. So we're in really good shape. We've added that this is an experienced team that's been through the financial crisis back in 2,008, 2009. So we have the playbook and we reacted very quickly and we feel very comfortable.

Speaker 1

Yes. Let me also say that Capital markets are pretty fluid, especially around established products like the mortgage product. There's more than the regional banks. Some of the insurance companies are starting to look at some of these spaces. And I think we have a high degree of confidence that we'll be able So any voids that temporarily show up.

Speaker 12

Wonderful. All right. Thank you, Stuart and Bruce. Perfect color there. Second one, just, you mentioned at the top around land and it sounds like prices are very sticky and you're trying to push back on that.

Speaker 12

I think you said you'd eventually see kind of a lagged benefit to margins, if I heard you correctly. I'm just curious if you could elaborate a little What you're doing to kind of push back and kind of get the land market where you think it should be at this stage? Thank you.

Speaker 1

Look, at the end of the day, land value is a residual of what it can be used for. And the residual land value off of residential land is relative to the price or sales price of the home. What makes Land value is somewhat sticky is the expectation that perhaps home prices have come down, but they'll bounce back up. And therefore, the old residual might come back into play and landholders will sometimes wait. At the end of the day, we're finding that we're coming into a new sense of normal.

Speaker 1

And I have to believe that If landholders, land owners want to generate cash and sell products, Ultimately, the valuation is going to have to revert to kind of that new normal of home pricing and the end use of the land. And there will be that rational relationship between land costs and home ultimate home price. We are patiently waiting for that to reconcile and we're doing it because we're simply not going to buy the land that's going to put us underwater Or by the next impaired margin. And so we are going to bide our time. If the market corrects to the upside, we'll pay a little bit more.

Speaker 1

But if it stays kind of situated where it is, we're quite sure that land sellers We'll come around to understanding that there's a new valuation that has to come into play. But just for clarity, I'd

Speaker 3

say operationally, we're going to be staying very close All land that is out there so that as it does ebb and flow, we are in that flow, know what's going on, you can make decisions quickly. Right.

Speaker 2

Rick? Dan, I think there's no doubt that the land market, the land sellers are seeing the permit and starts activity that John highlighted. I think some of them are getting a little bit nervous. They all think they have the last piece of land that can be acquired or developed. Sure, John.

Speaker 2

I heard that comment for the last 20 years. There's always more than when the last piece So we're being very careful for underwriting specifically to today's prices For respectful and strong margins and if the deals make sense, we're going to structure them really well and we'll move forward.

Speaker 1

So let me just say and I guess concluding from along this line is, they say it takes a village. Well, in the homebuilding world, it's the homebuilder, The land seller and the building partners or the trades all working together and recognizing the current pricing is going to define the future.

Speaker 2

With that, I want to

Speaker 1

say thank you to everybody for joining us and we look forward to reporting again in the future as we report future quarters. Thank you.

Operator

That concludes today's conference. Thank you all for participating. You may disconnect your line and please enjoy the rest

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Earnings Conference Call
Lennar Q1 2023
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