M/I Homes Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 24, 2024

There are 5 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Mi Homes Inc. First Quarter Earnings Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, April 4, 2024.

Operator

I would now like to turn the conference over to Phil Creek. Please go ahead.

Speaker 1

Thank you. Joining me on our call today is Bob Schottenstein, our CEO and President and Derek Klutch, President of our Mortgage Company. First to address Regulation Fair Disclosure, we encourage you to ask any questions regarding issues that you consider material during this call, because we are prohibited from discussing significant non public items with you directly. And as to forward looking statements, want to remind everyone that the cautionary language about forward looking statements contained in today's press release also applies to any comments made during this call. Also be advised that the company undertakes no obligation to update any forward looking statements made during this call.

Speaker 1

With that, I'll turn it over to Bob.

Speaker 2

Thanks, Phil. Good morning and thank you all for joining us today. We had an exceptional Q1, one of the best quarters in company history, setting 1st quarter records in homes delivered, revenue and income. Homes delivered increased 8% to a record 2,158 homes. Revenue increased 5% to a record $1,050,000,000 and pretax income increased by 33% to a first quarter record of $180,200,000 equating to 17.2% of revenue.

Speaker 2

Gross margins for the quarter were very strong, coming in at 27%, 3.60 basis points better than a year ago and up 200 basis points sequentially and return on equity equaled 21%. Despite a volatile interest rate environment and continued macroeconomic uncertainties, we were very pleased with our new contracts. For the quarter, new contracts increased by 17% owing to the strength of our communities and product offerings and very solid across the board execution on the sales front. During the quarter, we were operating on average in 10% more communities than a year ago. We continue to benefit from strong housing fundamentals, including an undersupply of homes and low inventory levels in most markets.

Speaker 2

We have seen a slight uptick in used home listings in certain markets, particularly Florida. However, the use of below market financing incentives were necessary in select markets and targeted communities has been and continues to be an important driver of our business. Our Smart Series Homes, which is our most affordable line of homes, continues to be a meaningful contributor to our sales and operating performance. Smart Series sales accounted for 52% of total company sales. This is roughly equal to what it was a year ago.

Speaker 2

As we enter the 2nd quarter, we are on track to open a number of new communities, increasing our average community count by roughly 10% over 2023. And the quality of our buyers in terms of creditworthiness continues to be very solid with average credit scores of 747 and an average down payment of 18%, which is about $85,000 We have made significant progress in improving our cycle time. Many of our markets are now operating at pre COVID cycle time levels, and we continue to be focused on this important operating imperative. From a balance sheet standpoint, we ended the quarter in excellent shape, the best in company history. Shareholders' equity reached a record $2,600,000,000 a 21% increase from a year ago and that equates to a book value of $95 a share.

Speaker 2

Our cash balance at quarter's end equaled $870,000,000 we had 0 borrowings under our $650,000,000 unsecured credit facility and a debt to capital ratio of 21%, down from 24% a year ago, as well as a net debt to capital ratio of negative 7%. Now I will provide some additional comments on our markets. Our division income contributions in the Q1 were led by Dallas, Orlando, Columbus, Raleigh, Tampa and Chicago. New contracts for the Q1 in the Northern region increased by 40%. New contracts in our Southern region increased by 3%.

Speaker 2

Our deliveries in the southern region increased by 9% from a year ago. Our deliveries in the Northern region increased by 6%. 61% of our closings came out of the Southern region, 39% out of the Northern region. Our owned and controlled lot position in the Southern region increased by 21% compared to a year ago and increased by 9% in the Northern region. 34% of our owned and controlled lots are in the Northern region, the other 66% in the Southern region.

Speaker 2

We have an excellent land position. Company wide, we own approximately 24,000 single family lots, which is roughly a 3 year supply. And on top of that, we control via option contracts an additional 23,000 lots, thus owning and controlling about a 5 year supply. As I conclude, let me just state that we are in the best financial condition in our history. We feel very good about our business.

Speaker 2

We have a lot of operating momentum and we continue to be focused on gaining market share, growing our business by approximately 5% to 10% per year. Mi Homes is well positioned to have another year of very strong results in 2024. With that, I'll turn it over to Phil.

Speaker 1

Thanks, Bob. Our new contracts were up 21 percent in January, up 14% in February and up 17% in March and our cancellation rate for the quarter was 8%. 51% of our first quarter sales were first time buyers and 57% were inventory homes. Our community count was 219 at the end of the Q1 compared to 200 a year ago and the breakdown by region is 101 in the northern region and 118 in the Southern region. During the quarter, we opened 21 new communities while closing 15.

Speaker 1

We currently estimate that our average 2024 community count will be about 10% higher than 2023. We delivered 2,158 homes in the Q1 delivering 72% of our backlog. And at March 31, we had 4,500 homes in the field versus 4,300 homes in the field a year ago, up 6%. Revenue increased 5% in the Q1. Our average closing price for the Q1 was $471,000 a 3% decrease when compared to last year's Q1 average closing price of $486,000 Backlog average sale price is $528,000 up from $522,000 a year ago.

Speaker 1

Our first quarter gross margin was 27.1%, up 360 basis points year over year and up 200 basis points from our 4th quarter. And our construction costs were flat in the Q1 compared to last year's 4th quarter. Our Q1 SG and A expenses were 10.5 percent of revenue compared to 10.0 percent a year ago. Our Q1 expenses increased 10% versus a year ago. Increased costs were due to our increased community count, higher selling expenses and increased headcount and incentive compensation.

Speaker 1

Interest income, net of interest expense for the quarter was $6,900,000 and our interest incurred was $8,700,000 We are very pleased with our returns for the Q1. Our pre tax income was 17% and our return on equity was 21%. During the quarter, we generated $187,000,000 of EBITDA compared to $147,000,000 in last year's Q1. And our effective tax rate was 23% in the Q1 compared to 24% in last year's Q1. Earnings per diluted share for the quarter increased to a Q1 record $4.78 per share from $3.64 per share last year, up 31% and our book value per share is now $95 a $16 per share increase from a year ago.

Speaker 1

Now Derek Klutch will address our mortgage company results. Thanks, Phil. Our mortgage and title operations achieved pre tax income $12,300,000 down slightly from $12,600,000 in 2023's Q1. Revenue increased 7% from last year to $27,000,000 due to higher margins on loans sold, an increase in loans originated and proceeds from the sale of mortgage servicing rights. This was partially offset by a lower average loan amount.

Speaker 1

Average loan to value on our first mortgages for the quarter was 82%, a decrease compared to 83% last year. Continue to see an increase in the use of government financing as 68% of loans closed in the quarter were conventional and 32% FHA or VA, compared to 81% and 19% respectively for 2023's Q1. Our average mortgage amount decreased to $386,000 in 20 24's Q1 compared to $393,000 last year. Loans originated increased to 15.56, which was up 24% from last year, while the volume of loans sold increased by 5%. As mentioned, our borrower profile remains solid with an average down payment of over 18% and an average credit score of 747.

Speaker 1

Finally, our mortgage operation captured 88% of our business in the Q1, a significant improvement from 78% last year. Now I'll turn the call back over to Phil. Thanks, Derek. As far as the balance sheet, we ended the Q1 with a cash balance of $870,000,000 and no borrowings under our unsecured revolving credit facility. We have one of the lowest debt levels of the public homebuilders and are well positioned with our maturities.

Speaker 1

Our bank line matures in late 2026 and our public debt matures in 2028 and 2,030 and has interest rates below 5%. Our unsold land investment at the end of the quarter is $1,400,000,000 compared to $1,300,000,000 a year ago and in March 31, we had $752,000,000 of raw land and land under development and $668,000,000 of finished unsold lots. During the Q1, we spent $108,000,000 on land purchases and $119,000,000 on land development for a total land spend of $227,000,000 At March 31, we owned 24,000 lots and controlled 47,000 lots. At the end of the quarter, we had 431 completed inventory homes and 18.96 total inventory homes. And of the total inventory 850 are in the northern region and 1046 are in the southern region.

Speaker 1

Last year, we had 432 completed inventory homes and 15 51 total inventory homes. We spent $25,000,000 in the Q1 repurchasing our stock and have $103,000,000 remaining under our current board authorization. And since the start of 2022, we have repurchased 10% of our outstanding shares. This completes our presentation. We'll now open the call for any questions or

Operator

comments. Thank Your first question comes from Alan Ratner from Zelman and Associates. Please go ahead.

Speaker 3

Hey, guys. Good morning. Congrats on the really strong quarter.

Speaker 2

Thanks, Alan.

Speaker 3

Bob, my first question, I guess, just you gave the monthly order growth rates, which is helpful. Rates did pick up towards the tail end of the quarter and thus far into April. Just curious if you've seen any impact either on traffic sales, any kind of price point differentiation with rates climbing more recently? And what are your current incentives that you're offering on the rate buy downs to combat that?

Speaker 2

Yes. Great question. Frankly, very similar to what I believe Pulte articulated yesterday, in the last week or so, we have seen a slight moderation in activity and in traffic. And in some ways, it's too early to know how significant it is. But I would say that what we've seen is almost identical candidly to what they've seen.

Speaker 2

And my guess is other builders are seeing it too. Clearly, there's been even more than before volatility in rates as you know as well as anyone. Look, we have been very targeted and very focused, not in every community is the same, not every market is the same, but where necessary, we will continue to be as aggressive as we have been in using financing incentives. It's pretty safe to say that the ability to provide below market financing rates aren't always the same. It depends on the market, depends on the community.

Speaker 2

Some need more help than others. Every community is a little bit different. And frankly, we don't manage. It's not like spreading peanut butter. We try to be very, very targeted and focused.

Speaker 2

And I think that's one of the regions our margins have held up so well. There are certain communities where you just don't need to do as much as you need to do in others. And I can't emphasize enough as long as I've been in this business, I've been it's been beaten into me that this is a subdivision specific business and every store, every community, every subdivision is a little bit different. It's not like we have 200 different variations, but we have to be very market aware in how we deal with it. We will continue to operate that way.

Speaker 2

Might we have to do a little bit more? Possibly. If we do, we will. Very pleased with our margins. We're very frank about this when we discuss it with you.

Speaker 2

I know we don't guide on margins and you know that as well. You never fail to mention that and I understand. But we went into this year believing margins would be under more pressure than they have been. Our margins have held up better than expected. I think we've got a lot of really strong communities.

Speaker 2

Our new communities are operating at better than we pro form a them at so far. So I guess the answer is, yes, there has been a slight moderation in activity recently. Although it started about 2 weeks ago, last week traffic was a little better than the week before, particularly website. It's hard to draw too much of a conclusion from 7 or 8 days. But we're going to do what we need to do.

Speaker 2

And in some markets, we're offering mortgages as low as 5.8 percent s and others, we're in the low 6s. And in some markets there the rates differ from community to community. So I don't know if that really helps, but I think that's where we are. And I remain we remain generally quite optimistic about housing. I know that resale listings have moved up not in all, but in a number of markets, particularly Tampa and Orlando.

Speaker 2

And that's probably having a little bit of an impact combined with rates. But when you look at historical levels, I think that the fundamentals still point in the right direction. And I we're focused on growing the business by 5% to 10%. I think it will be closer to 10% than 5%, but we'll see. And we believe we can continue to do that.

Speaker 2

Our land position, we own slightly less than a 3 year supply. We own and control about a 5 year supply. We haven't changed our land strategy in 20 years. And we're not land light where we once weren't. We're not land heavy where we once weren't.

Speaker 2

We've been pretty consistent on that. And as you know, 99% of our business is to consumers. What we report does not have anything material with regard to built for rent or wholesale or bulk sales to renter operators. That business can be hot when it's hot and not when it's not. And maybe we should have been in it when we weren't, but we've never really had that as a big operating strategy.

Speaker 2

And we like sort of staying true to our core operating principles. That's a long answer to your question, but I wanted to cover a bunch of different things.

Speaker 3

No, it's really helpful, Bob, and really appreciate you walking us through that. 2nd, very helpful to 5% to 10% kind of goal or target for growth. Last year, the seasonality of your closings was a little bit unusual just based on kind of the where you had homes under construction in the field. 4th quarter was a lower closing quarter and this quarter you were up sequentially, which is also pretty unusual for 1Q. So can you without giving specific guidance, can you maybe just kind of walk us through the year how you expect the closing cadence to unfold?

Speaker 3

Is it going to be fairly even flow like similar to last year or should we expect a return to more typical seasonality?

Speaker 1

Phil will answer that. Yes, this is Phil. We did disclose as far as houses in the field at the end of the Q1 we had 4,500 homes in the field versus 4,300 in the field last year. Like you say last year was kind of opposite with the end of 2022 sales being so weak and so forth. So our expectation overview overall is as Bob said trying to grow the business 5% to 10% a year.

Speaker 1

We would expect closings to be somewhat flat, maybe go up a little bit more toward the second half. We are doing 50% to 60% specs in half for a while. We think that in today's market environment for a lot of different reasons that's kind of the best place to be. Tend to have a few more specs in the attached townhouse communities and the smaller Smart Series more affordable side of it. So I would expect closings to be kind of similar in the second quarter as the first and then maybe go up a little bit in the second half, our run rate again hopefully will be 5% to 10% up on an annual basis for the next year or 2 is kind of what we're targeting.

Speaker 1

We definitely have the land. In Nashville, we just opened our 3rd community there. So we're starting to sell and close houses at a better rate there. And then our other new market Fort Myers Naples, it's similar. They have a couple of stores open.

Speaker 1

That's also going to give us some growth. So overall, we feel really good about how the business

Speaker 3

Thank you for that, Phil. That's certainly helpful for our modeling. If I could squeak in one last one and then I'll move it on. I was a little surprised to see your FHA share up so much year over year going from 19% to 32%, because it seems like your first time buyer shares been holding pretty steady. Any particular reason why you've seen that kind of mix shift in the mortgage products?

Speaker 2

I was a little surprised too and Derek is going to try to provide more color on that.

Speaker 1

Yes. Alan, we looked into that because it was surprising. And I think what we're seeing with interest rates going up, our price points still fit into the FHA loan limits and the buyers are choosing to put a lower down payment down and use the other money either to buy down the rate themselves a little bit more or to pay off some debt to be able to qualify.

Speaker 2

I think last year at this time our average down payment was closer to 20% than 18%, might have been 19% and change. I can't remember exactly. So it has we still have a very high quality buyer putting roughly $85,000 down on average. But I was surprised the down payment didn't come down a little bit more given the FHA and maybe that hasn't just worked its way through the system yet, I'm not sure. But I hope that answers your question.

Speaker 3

Yes. No, I appreciate that.

Speaker 2

And we also Bill mentioned townhomes, we continue like I suspect probably most in the industry, affordability is a gigantic challenge for the country and for builders. We'd all like to have more affordable high margin product. That's hard to do. What's helping us a little bit on that front is we continue to be doing more and more attached product, whereas it was less than probably 10% of our business 3 years ago. Today, it's probably pushing 15%, 16%, 17% of our business and likely will level out at somewhere between 15% 20%.

Speaker 2

So that's a that's and I think a lot of that's incremental business. So we're excited about that.

Speaker 1

And also if you look at the our store count continues to go up. We opened 22 new stores in the Q3 of 2023. We opened 20 new stores in the Q4 of last year And then we opened 21 new stores in the Q1 of this year. So when you look at the store count overall like 2 20, there's been 60 plus open in the last 9 months. So hopefully we're focused on the right locations, the right price point, the right product.

Speaker 1

We pay a lot of attention to that and hopefully that's paying off also.

Speaker 3

Great. Well, thanks a lot and congrats again on the strong quarter.

Speaker 2

Thanks, Alan. Take care.

Operator

Your next question comes from Jay McCanless from Wedbush. Please go ahead.

Speaker 4

Hey, good morning. Thanks for taking my question. So to take Alan's question a step further, assuming that you're going to see more buyers, they need to be under the FHA and the VA loan limit. How are you feeling about your current community mix and where your pricing is set on those? And then especially as you go into the back half of the year and open up more communities, do you feel like your product will be priced appropriately to be under those limits?

Speaker 4

Yes. Yes.

Speaker 2

I don't know if I more any more needs to be said. I don't know that FHA is going to continue to go up. I don't think we know enough to know that. And it may come back down, but I think that unless I'm mistaken or missing something, I think we're in very good shape relative to FHA loan limits across our markets. I'm looking

Speaker 1

at Derek. Yes. And Jay, almost all of our Smart Series has always been under the FHA loan limit, and a good portion of our other did qualify for FHA loan limits. They just chose conventional.

Speaker 3

Okay.

Speaker 4

That's good to know. Thank you, Derek. So my second question, in the Q1, the orders in the South were up only about 3% after rising by a double digit percentage the last couple of quarters. Could you discuss the competitive dynamics in the southern region? And are you seeing more competition on price and or incentives in those markets?

Speaker 2

I think a lot of that is owing to weakness in the Austin market. Austin had been strong for us and Austin is probably one of the more challenged markets right now just in terms of trying to reset with as you know, it's probably the most heated of all the markets we do business in over the last several years until it wasn't. San Antonio got a little bit softer too. It's a very rate sensitive market, heavy, heavy first time buyer, almost 100% of our business in San Antonio is Smart Series. So and then a little bit of softness, not much, but just a wee bit up still up, but not up the double digit amounts in certain of the Florida markets.

Speaker 1

Yes. Jay, if you look at the new contracts, again, in the Q1 of this year, we sold over 2,500. Last year, we sold right about 2,200. The southern region pretty much was flat, up 3%. The change in the Midwest really was in the Q1 of last year, the Midwest sold 828 or the Northern region is 828 versus 1162.

Speaker 1

I think it was a combination that at that time our hotter markets southern markets really had a really good Q1 last year in the Midwest, Northern region was a little bit slow. When you look at this year's Q1, we had very strong sales in Columbus, Chicago, Minneapolis. Those markets were very strong. And again, that led to the 40% increase in sales in the Northern region. Bob talked about some of the challenges in Austin.

Speaker 1

Also I think the Florida markets have been challenged a little bit, higher inventory levels, people talk about insurance costs and those type of things. But again, overall to sell 2,500 plus homes the Q1, we feel very good about that.

Speaker 2

And let's not make no mistake, the Carolinas continue to be very strong for us, as does Dallas and to some and for the most part Houston. So I don't want to I mean, you could I don't want to leave anything out that might mislead.

Speaker 4

Sure. Thank you for that.

Speaker 2

Every single one of our divisions hit their 1st quarter sales budget. That does not happen very often.

Speaker 4

That's a great accomplishment. I guess when you think about the Northern communities, is there a heavier reliance on build to order there? Is it something that we need to think about? Or are you running the north and the south very similar at roughly 50% to 60% spec? And that's going to drive the closing cadence that you talked to Alan about?

Speaker 2

Very similar. There's no distinction. The spec our approach to specs, there could be a few one offs, but it's no different all 17 markets were pretty much approaching at the same way.

Speaker 4

Okay. That's great. And then

Speaker 2

And frankly, there's a number of reasons for that. One is clearly the ability to more economically, if you will, provide financing incentives. Long term mortgage locks are extraordinarily expensive, if even if available. Whereas a lot of the rate packages that you see advertised by us and I suspect many of our competitors, those are only really good for homes that can close within 2 months, approximately. So by definition, specers, it's either for a spec or it doesn't work.

Speaker 2

So the importance of having spec inventory out there combined with hopefully smartly designed financing incentives is a crucial driver of sales.

Speaker 4

Got you.

Speaker 1

Jay, what you see in our results, as you see a backlog average sale price over $500 and you see a delivery price of like $4.75 dollars I mean we're seeing 30% to 40% of our closings come from specs that sell and close in the quarter. So they were not in the backlog at the start of the quarter. And in general, our specs tend to be lower average sale price. They tend to be more in attached townhouse communities. They tend to be more in the Smart Series.

Speaker 1

But again, a big thing driving our business is opening 20 new stores a quarter. Again, what is that product? What is that price point? Houston, San Antonio does a whole lot of Smart Series by its nature they have a few more specs. But again you manage that based on you want specs to move through the system.

Speaker 1

We don't want to have a bunch of finished specs, those type of things. And our spec levels are very comparable to where they were a year ago. We think we're doing a pretty good job managing that.

Speaker 4

Got you. Could you talk about how many homes you sold and closed in the Q1 and maybe what that number was last year?

Speaker 1

It's up a little bit. This year, I think it was about 35% back sold and closed in the same quarter. It was a little less than that last year in Q1,

Speaker 4

Jay. And then the next question I have, what percentage of your buyers this quarter took some type of mortgage buy down assistance and how did that compare maybe to Q4 and what you saw last year?

Speaker 1

Yes, this is Derek. Almost all of the buyers use some sort of below market rate. Some are just slightly below, some are the deeply discounted. Generally, it's probably pretty flat to where it was last year. I don't think there's much differentiation.

Speaker 1

Again, Bob talked about using more specific approach by community and by buyer. Some buyers need more assistance with maybe closing costs or those type of things and just a little bit of buy down. I mean every customer can be a little different. And again our mortgage company only takes care of my own customers. We're very focused on individual customers and communities.

Speaker 3

Okay.

Speaker 4

So I guess the next couple of questions I have, I guess maybe could if you've got that many people taking mortgage buy down assistance along with some incentives, I guess what are some of the other operating levers that you pulled to get to this gross margin improvement from the Q4 and Q1? Was it geographic mix or what was going on there?

Speaker 2

Why were our margins up as much as they were? Why were they so much better than expected?

Speaker 4

Yes. That's it.

Speaker 2

1, I think really good execution It's never one thing. It's pricing by community. It's pricing by product. It's pricing to market. It takes a lot more work, but that's what our people are paid to do and they do really well.

Speaker 2

We're very fortunate in that regard. I think that we have some really well located communities that have come on in the last year or so that are performing better than we even anticipated they would. And I think demand in general, demand has been a little better than we thought. We're very reluctant to cut prices just to drive volume. We're in some submarkets, we see our competitors promoting with either big discounts to Realtors for bringing people in or otherwise.

Speaker 2

And we not that we do everything perfect, but we scratch our head when we see that and go, we don't understand that. The traffic is there, why would you do that? But in some cases, there's mandates from corporate by competitors to do things a certain way everywhere and they are, whether it makes sense or not. I think that the targeted approach has always worked best for us. Think our margins have really held up well over the last period of time.

Speaker 2

And I think comparatively they'll continue to because I think we're going to keep doing what we've been doing. I don't know if I have a better answer than that.

Speaker 4

Yes, that's great.

Speaker 2

Every community, we don't have a 1,000 stores. If we did, it might be a lot harder. We've got 220 or so stores and across 17 markets, it's a very intense subdivision focus. If the margins can be 25.5 instead of 25, they need to be. And we try to monitor that as needed weekly.

Speaker 1

And I know I keep coming back Jay to the new stores, but you only get a chance to open once. And you open a couple of lots, you sell a couple of houses, then you kind of reassess where you are. Again, don't get too far ahead of yourselves. When you look at margins the last four quarters, we were 25.5% in the 2nd quarter of 23%, we were 26.9% in the 3rd quarter of 20 3, then we were down to 25.1 and now 27.1. So mix is always impacted.

Speaker 1

We have some divisions that have higher margins than other for different reasons. So there's always some mix and some product and where you're opening new stores. But again, we have a big focus always have on gross margin. It means so much to us.

Speaker 2

The other side of it is, we're really, really because not all builders account for gross margin the same way. There's nothing that you or I can do about that. But the we're very focused on our pretax income percentage, 17.2% for the quarter, so the best we've ever seen. Very pleased with that. You can't get to 17% if you don't manage the gross margin line properly.

Speaker 4

Got you. 2 more for me and I'll pass it on. Bob, I think made a comment earlier about new communities performing better than expected thus far in 2024. Is that the case in both the northern and southern regions?

Speaker 2

I think it is, but I'm going to defer to Phil. I think he's got some of that in front of him right now.

Speaker 1

Yes. Yes. I mean, if you look at it, at the end of the year, we had 102 in the northern, now we have 101. We had 111 in the southern region at the end of 2023, now we have 118. So yes, there's a few more new openings there.

Speaker 1

Again, Fort Myers and Nashville are in the southern region where we're opening stores, new markets and stuff. But yes, but overall, we're pleased with all the new stores with the way they're opening and what they're performing at, Jay.

Speaker 4

Okay. And then last one for me. Stock repurchase, how are you feeling about that for the year? And should we expect some level ongoing stock repurchase on a quarterly basis going forward?

Speaker 1

You know, Jay, that's something we look at constantly. We'll be discussing it again with our Board at our May quarterly meeting. The last few quarters, we've been at that $25,000,000 repurchase level. We do think it's important to have a consistent type program. We're low leverage people in general.

Speaker 1

We're having $800,000,000 in cash is a little more than we thought we would have. So again, we would we'll continue looking at that. We are spending more on land and we'll spend more on land than we did last year with more of that spend being in land development. I think we think we're in great shape from a land standpoint as Bob said to continue growing the business. But we will continue looking at that and we'll be discussing possibly increasing that level.

Speaker 4

Okay. And then just since you brought it up, Bill, maybe talk about what your land costs have gone up this year and what you're kind of projecting or thinking going forward in terms of land cost inflation?

Speaker 1

Land costs continue to increase. There's still competition for the better A locations, which we primarily focus on. We are spending more on land than last year and anticipate continuing to do that. Today, we're developing 80% to 85% of our own communities, which is a little higher than a year ago. So it's not going up as much as it was, but raw land costs and land development costs continue to increase.

Speaker 1

But again, I mean, your location, the product price point you have, I mean, the locations are key to our business. So we continue to spend a whole lot of time on that.

Speaker 4

Okay. Sounds great. Thanks for taking my questions.

Speaker 1

Thanks, Jay. Thanks, Jay.

Operator

And there are no further questions at this time. I will turn the call back over to Phil Krige for closing remarks.

Speaker 1

Thank you for joining us. Look forward to talking to you again next quarter.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and you may now disconnect your lines. Thank you.

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