Q1 2024 M/I Homes Inc Earnings Call

Participants

Phillip Creek; Chief Financial Officer, Executive Vice President, Director; M/I Homes Inc

Robert Schottenstein; Chairman of the Board, President, Chief Executive Officer; M/I Homes Inc

Derek Klutch; Chief Executive Officer of M/I Financial; M/I Homes Inc

Alan Ratner; Analyst; Zelman & Associates

Jay McCanless; Analyst; Wedbush Securities, Inc.

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to M/I Homes Inc. first-quarter earnings conference call. (Operator Instructions) This call is being recorded on Wednesday, April 4, 2024.
I would now like to turn the conference over to Phil Creek. Please go ahead.

Phillip Creek

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 nonpublic items with you directly. And as to forward-looking statements, I 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.
With that, I'll turn it over to Bob.

Robert Schottenstein

Thanks, Phil. Good morning and thank you all for joining us today. We had an exceptional first quarter, one of the best quarters in company history, setting first quarter records in homes delivered, revenue, and income. Homes delivered increased 8% to a record 2,158 homes. Revenue increased 5% to a record $1.05 billion, and pretax income increased by 33% to a first-quarter record of $180.2 million, equating to 17.2% of revenue. Gross margins for the quarter were very strong, coming in at 27%, 360 basis points better than a year ago and up 200 basis points sequentially, and return on equity equaled 21%.
In spite of 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 we have seen a slight uptick in used home listings in certain markets, particularly Florida. However, the use of below-market financing incentive 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 as we enter the second 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 credit worthiness continues to be very solid, with average credit scores of seven 47 and an average down payment of 18% to 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 continued 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 2.6 billion, a 21% increase from a year ago. And that equates to a book value of $95 a share. Our cash balance at quarter's end equaled $870 million. We had zero borrowings under our $650 million 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 are division income contributions in the first quarter were led by Dallas, Orlando, Columbus, Raleigh, Tampa, and Chicago. New contracts for the first quarter in the northern region increased by 40%. New contracts in our Southern region increased by 3%. 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, 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% and the southern region, we have an excellent land position Company-wide, we own approximately 24,000 single-family lots, which is roughly a three three year supply. And on top of that, we control via option contracts, an additional 23,000 lots, thus owning and controlling about a five-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. 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. M/I Homes is well positioned to have another year of very strong results in 2024.
With that, I'll turn it over to Phil.

Phillip Creek

Thanks, Bob. Our new contracts were up 21% 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 to first-time buyers and 57% were inventory homes. Our community count was two 19 at the end of the first quarter compared to 200 a year ago. And the breakdown by region is one oh one in the northern region and one 18 in the Southern region. During the quarter, we opened 21 new communities while closing 15.
We currently estimate that our average 2020 for community count will be about 10% higher than 2023. We delivered 21 hundred and 58 homes in the first quarter, delivering 72% of our backlog. And at March 31st, 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 first quarter. Our average closing price for the first quarter was 471,000 a 3% decrease what compared to last year's first quarter average closing price of $486,000. Backlog average sale price is 528,000 up from 522,000 a year ago.
Our first quarter gross margin was 27.1%, up 360 basis points year over year and up 200 basis points from our fourth quarter and our construction costs were flat in the first quarter compared to last year's fourth quarter. Our first quarter SG&A expenses were 10.5% of revenue compared to 10.0 a year ago. Our first quarter 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.
Interest income net of interest expense for the quarter was $6.9 million and our interest incurred was 8.7 million. We are very pleased with our returns. For the first quarter. Our pretax income was 17% and our return on equity was 21% during the quarter, we generated $187 million of EBITDA compared to $147 million in last year's first quarter. And our effective tax rate was 23% in the first quarter compared to 24% in last year's first quarter. Our earnings per diluted share for the quarter increased to a first quarter record $4.78 per share from $33.64 per share last year, up 31%. And our book value per share is now $95 a $16 per share increase from a year ago.
Now Derek Klutch will address our mortgage company results.

Derek Klutch

Thanks, Phil. Our mortgage and title operations achieved pretax income of 12.3 million, down slightly from $12.6 million in 2020 three's first quarter revenue increased 7% from last year to 27 million due to higher margins on loans sold an increase in loans originated and proceeds from the sale of mortgage servicing rights was partially offset by lower average loan amount 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 the loans closed in the quarter were conventional and 32% FHA or VA, compared to 81% and 19% respectively.
For 2023's first quarter, our average mortgage amount decreased to $386,000 in 2020 four's first quarter compared to $393,000 last year. Loans originated increased to 1,556, 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 downpayment of over 18% and an average credit score of seven 47.
Finally, our mortgage operation captured 88% of our business in the first quarter a significant improvement from 78% last year.
Now I'll turn the call back over to Phil.

Phillip Creek

Thanks, Derek. As far as the balance sheet, we ended the first quarter with a cash balance of $870 million 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. Our bank line matures in late 2026, and our public debt matures in 2028 and 2030. And as interest rates below 5%. Our unsold land investment at the end of the quarter is $1.4 billion compared to $1.3 billion a year ago. And at March 31st, we had $752 million of raw land and land under development and $668 million of finished unsold lots.
During the first quarter, we spent $108 million on land purchases and $119 million on land development for a total land spend of $227 million at March 31st, we owned 24,000 lots and controlled 47,000 lots. At the end of the quarter, we had 431 completed inventory homes and 896 total inventory homes and of the total inventory, 850 are in the northern region and 1,046 are in the Southern region last year, we had 432 completed inventory homes and 1,551 total inventory homes spent $25 million in the first quarter, repurchasing our stock and have 103 million 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 comments.

Question and Answer Session

Operator

(Operator Instructions) Alan Ratner, Zelman & Associates.

Alan Ratner

Hey, guys, good morning. Congrats on the really strong quarter on stake sale and Bob, Bob, my first question, I guess just Justin, you gave the monthly order growth rates, which are which is helpful. Rates did tick 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.

Robert Schottenstein

So a great question, frankly, very similar to what I believe faulty articulated yesterday in the last week or so, we have seen a slight moderation in activity and then traffic and you know, in some ways, it's too early to know how significant it is. But um, I would say that what we've seen is almost identical, candidly, to what they've seen and my guess is other builders are seeing it too.
Clearly, there has been a little 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 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, some need more help than others. Every community is a little bit different.
And frankly, some we don't we don't manage. It's not like spreads and peanut butter. We tried to be very, very targeted and focused. And I think that's one of the reasons 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 and others. And I can't emphasize enough as long as I've been in this business, I've been it's been beaten to 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 young market market aware and how we how we deal with it.
We will continue to operate that way. Some might we have to do a little bit more possibly if we do we will. I'm very pleased with our margins were very frank about this when we discuss it with you. 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. Now, I think we've got a lot of really strong communities. Our new communities are operating at better than we pro forma them at so far.
So I guess the answer is yes, there has been a slight moderation in activity recently, although it started about two weeks ago last week, traffic was a little better than the week before, particularly website. It's hard to draw too much conclusion from seven or eight days from, but we're going to do we need to do and some in some markets we're offering mortgages as low as five and seven eights and others were in the low sixes in some markets there. The rates differ from community to community.
So I don't know if that really helps but I think that 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 at all, but in a number of markets, particularly Tampa and Orlando. And that's probably having a little bit of an impact combined with rates. But Tom, when you look at historical levels, I think that the fundamentals still point in the right direction and we're focused on growing the business by 5% to 10%. I think it will be closer to 10 than five, but we'll see and we believe we can continue to do that.
Our land position we own slightly less than a three year supply. We own and control about a five year supply we haven't changed our land strategy in 20 years and we're not land-light where we once were and were not land heavy where we once were, and 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 build for rent or wholesale or bulk sales to two renter operators on 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. And we we like sort of staying true to our core operating principles. That's a long answer to some question, but I wanted to cover a bunch of different things.

Alan Ratner

No, that's really helpful, Bob, and I really appreciate you walking us through that. Second, very helpful the 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 and the deals in your fourth 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 two to unfold? Is it going to be fairly even flow like similar to last year or should we expect a return to more typical seasonality?

Robert Schottenstein

Phil will answer that.

Phillip Creek

Yeah, this is Phil. We did disclose as far as houses in the field at the end of the first quarter, 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 22 sales being so weak and so forth. So our expectation overview overall is, as Bob said, in trying to grow the business in oh 5% to 10% a year, 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 and have 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 I would expect closings to now be kind of similar in the second quarter Vinod is as the first and then maybe go up a little bit in the second half in our run rate. Again, hopefully we'll be, you know, 5% to 10% up on an annual basis, you know, for the next year or two is kind of what we're targeting. We definitely have the land in Nashville. We just opened our third 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 stores open. That's also going to give us some growth. So overall, we feel really good about how the business.

Alan Ratner

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

Robert Schottenstein

I was a little surprised too, and Derek's going to tried to provide more color on that.

Derek Klutch

Yeah, we looked into that because it was surprising and I think what we're seeing with interest rates going up are more price points still fit into the FHA loan limits and the buyers are choosing to put the lower downpayment 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.

Robert Schottenstein

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 downpayment didn't come down a little bit more given the FHA and maybe that hasn't worked its way through the system yet. I'm not sure but Tom and interest, and I hope that answers your question.

Alan Ratner

Yeah, no, appreciate that.

Robert Schottenstein

And we also -- Phil 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 a more and more attached product, whereas it was less than probably 2010% of our business three years ago. Today, it's probably pushing 15, 16, 17% of our business and likely will level out at somewhere between 15% and 20%. So that's a that's a that's and I think a lot of that's incremental business. So we're excited about that.

Phillip Creek

And then also, if you look at that in our store count continues to go up. We opened 2022 new stores. The third quarter of 23. We opened 20 new stores the fourth quarter of last year, and then we opened 21 new stores the first quarter of this year. So when you look at the store count overall, like to 20, there's been a 60 plus opened the last in out nine months. So hopefully, we're focused on the right locations, the right price point, the right product, we pay a lot of attention to that and hopefully that's paying off also.

Alan Ratner

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

Operator

(Operator Instructions) Jay McCanless, Wedbush.

Jay McCanless

Hey, good morning. Thanks for taking my questions. So James, to take Alan's question a step further. Assuming that you're going to see more buyers there, you need to be under the FHA and the VA loan limits. 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. How do you feel like your product will be priced appropriately to be under those levels?

Robert Schottenstein

Yes, yes, I don't know if I have 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 it may come back down. But I think that, Tom, unless I'm mistaken or I'm missing something, I think we're in very good shape relative to FHA loan limits across our markets I'm looking at Derek and Jay, all almost all of our Smart Series has always been under the FHA loan limit.

Derek Klutch

And a good portion of our other did qualify for FHA loan limits, they just chose conventional.

Robert Schottenstein

Okay.

Jay McCanless

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

Robert Schottenstein

I think a lot of that is owing to weakness in the Austin market. Boston had been strong for us and Austin's 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 was the 100% of our business in San Antonio is Smart Series, um, so and then a little bit of softness, not much, but just a wee bit ups is still up but not up double digit amounts in certain of the Florida markets.
JJ.

Phillip Creek

If you look at the new contracts, again, in the first quarter of this year, we sold over 25 hundred. Last year. We sold right, about 22 hundred. The southern region pretty much was flat, up 3%. The change in the Midwest really was in the first quarter of last year. The Midwest South eight 28 or the northern region had a 28 versus 1162. And I think it was a combination that at that time, our hotter markets, quote, unquote, the southern markets really had a really good first quarter last year in the Midwest or the region was a little bit slow. When you look at this year's first quarter, 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.
You know, Bob talked about some of the challenges you know, in Austin also, I think the Florida markets have been challenged a little bit higher inventory levels, people talk about insurance costs and those type things but you know, again, overall the sale 25 hundred plus homes the first quarter, we feel very good about that unless that make no mistake, the Carolinas continue to be very strong for us as those panelists add to some in for the most part, Huston.

Robert Schottenstein

So I don't want to I mean, you could I don't want to leave anything out to that it might mislead?
Sure. Thank you for that every site, every single order, but every single one of our divisions at their first quarter sales budgets, it does not happen very often it's a great accomplishment.

Jay McCanless

I guess when you think about the northern communities, is there a heavier reliance on build to order that? Or 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 and that's going to drive the closing cadence that you talked to Allen about very similar.

Robert Schottenstein

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

Jay McCanless

Great. Okay.

Robert Schottenstein

And frankly, 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 two months of approximately. So by definition, Beckers, it's either for a spec or it's it does more. So the importance of having spec inventory out there combined with hopefully smartly designed financing incentives is a crucial driver of sales.

Phillip Creek

And when you talk of messaging in our results you know, as you see a backlog, average sale price over 500 and you see a delivery price of like 40 75. I mean, we're seeing 30% to 40% of our closings come from specs that sale and closed 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 shelf price. They tend to be more in attach townhouse communities. They tend to be more in the Smart Series. But again, you know, a big thing driving our business is opening 20 new stores a quarter. Again, what is that product? What is that price point?
You know, Houston, San Antonio does a whole lot of Smart Series by nature. They have a few more specs, but again, you manage that based on no, what specs to move through the system. We don't want to have a bunch of finished specs those type 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.

Jay McCanless

Can you talk about how many homes you sold and closed in the first quarter and maybe what that number was last year?

Phillip Creek

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

Jay McCanless

Jay, the next question I have what percentage of your buyers this quarter took some type of mortgage buydown assistance and how did that compare maybe to fourth quarter and what you saw last year?

Derek Klutch

Is there some almost almost all of the buyers do some sort of below market rate somewhere just slightly below. Some of the deeply discounted generally is probably pretty flat to where it was last year.
I don't I don't think there's much differentiation.

Phillip Creek

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 things. And just a little bit of buyback. I mean, every customer can be a little different. And again, our mortgage company only takes care of my home customers. We're very focused on individual customers and communities.
Okay.

Jay McCanless

So I guess the next couple of questions I have, I guess maybe you could if you've got that meaningful making mortgage buydown assistance along with some incentives, I guess what are some of the other operating levers that you've pulled get to this gross margin improvement for from the fourth quarter in the first quarter? Was it geographic mix or what was going on there?

Robert Schottenstein

Well, you know where our margins up as much as they were. Why were they so much better than expected yet, but you know, one, I think really good execution as such. It's never one thing. It's pricing by community. It's pricing by product. It's pricing to market. Thanks a lot more work, but that's what our people are paid to do and they and they do really well. And we're very fortunate in that regard. I think that, um, we have some really well-located communities that have come on in the last year or so that some are performing better than we even anticipated, they would and dumb and I think demand in oh, in general, demand has been a little better than we thought we were very reluctant to cut prices just to drive volume or in some submarkets. We see our competitors promoting with either big discounts to realtors for bringing people in or otherwise. And we so 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 dumb?
No, in some cases there's mandates from corporate by competitors 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. So I think our margins have really held up well over the last period of time. 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 from an ordering or every could be every community. We don't have 1,000 stores. If we did, it might be a lot harder. But we've got, you know, 220 or so stores and across 17th markets. It's a very intense subdivision focus. If the margins can be 25.5 instead of 25, they need to be. And we tried to monitor that as is as as as needed, weekly.

Phillip Creek

And I know I keep coming back to the new stores that you only get a chance to open watch and you opened a couple of lots of T cell, a couple of houses, the new 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 we were 25 five in the second quarter of 23. We were 26 nine in the third quarter. At 23. They were down to 25 one and now 27 one. So mix is always impacted. You know, 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.

Robert Schottenstein

The other side of it is you know, we're really, really pleased because not all builders account for gross margins the same way. There's nothing that you or I can do about that. But those are the we're very focused on our pretax income percentage, 17.2% for the quarter for 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.

Jay McCanless

Just two more for me and I'll pass it on. Bob, I think you made a comment earlier about new communities performing better than expected. Thus far in 24, is that the case or northern and southern regions?

Robert Schottenstein

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?

Phillip Creek

Yes.

Robert Schottenstein

Yes.

Phillip Creek

I mean, if you look at it at the end of the year, we had one or two in the northern. Now we have one oh one, we had 111 in the Southern region at the end of 23. Now we have one 18. So yes, there's a few more new openings there 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.

Robert Schottenstein

Okay.

Jay McCanless

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

Phillip Creek

Jenny, 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 million repurchase level. We do think it's important to have a consistent type program, you know, were low leverage people in general. So having 800 million of cash is a little more than we thought we would have. So again, we would count 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.

Jay McCanless

And then just since you brought it up, so 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, but land costs continue to increase there's still competition for the better eight locations, which we primarily be no focus on.

Phillip Creek

We are spending more on land than last year and anticipate continuing to do that. You know, today, we're developing 80% to 85% of our own communities, which is a lot 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. 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.

Jay McCanless

So it sounds great. Thanks for taking my questions.

Operator

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

Phillip Creek

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.