Q4 2024 Beazer Homes USA Inc Earnings Call

David Goldberg

Thanks, Allan. This afternoon, I will concentrate on providing some more specifics on our first quarter guidance and our outlook for the fiscal year. I will conclude my comments with a discussion of our balance sheet and our land position. We have detailed our fourth-quarter and full fiscal year 2024 results in our presentation, our press release, and our 10-K. And of course, we’re happy to discuss them during the Q&A portion of our call.
Let’s start with our expectations for the first quarter of fiscal 2025.
Period-end community count should be up about 20% versus the same period last year as we benefit from our increased land spending over the past few years. Our sales pace should accelerate versus the prior year by about 10%. More communities and higher pace should generate year-over-year sales growth of around 30%. We anticipate closing more than 925 homes with an average ASP of around $515,000.
Adjusted gross margin should be around 19%. The sequential reduction in gross margin from the fourth quarter is a function of two related factors. First, specs increase as a percentage of our total sales in the back half of 2024 and have typically carried margins 2 to 3 points below to-be-builts.
Second, we lean pretty heavily into incentives in a handful of markets in the fourth quarter, particularly on our spec homes to stimulate sales pace. Even though we’ve since reduced these incentives or in some cases, sold out of the communities, margins will be impacted in the first quarter. The first quarter should represent a trough for our gross margin for the fiscal year.
SG&A as a percentage of revenue should be around 13%, about 1 point lower than the same time last year, helping to support our operating margin. We expect to generate about $30 million in adjusted EBITDA. Interest amortized as a percent of homebuilding revenue should be just over 3%, and our effective tax rate to be approximately 15%.
The higher tax rate versus 2024 is in line with our expectations as we won’t have the benefit of harvesting tax credits generated in prior years in 2025. This should lead to diluted earnings per share of about $0.30. I want to pick up where Allan left off on our full year outlook and give you a perspective on how we’re thinking about the range of potential outcomes on community count, sales pace, and gross margin.
Predicting community count with precision is pretty challenging, given variability in land development timing, weather and closeouts. With this caution, we expect to add 18 to 22 communities to our average community count reflecting 12.5% to 15% growth.
We note our activations are weighted more to the back half of the year and our community count could be flat or down sequentially in the second quarter depending on the timing of closeouts. We are committed to achieving a sales pace between 2.5 and 3 sales per community per month for the full year, more in line with our historical norms and an improvement of fiscal 2024.
The margin in our backlog at 9/30 is about 20.5%, including most of the lower-margin homes will close in the first quarter. This implies the balance of the backlog has much higher margins. Nonetheless, for the full year, we anticipate gross margin will be between 19.5% and 20.5% because we expect spec sales and closings to remain elevated through the year. The high end of the range is attainable if we’re able to sell a greater share of to-be-builts in the spring or we can drive further reductions in incentives.
ASP and SG&A are less subject to market fluctuation, and as such, we have better visibility into our expectations for the year. Given our ASP and backlog near $540,000 and the mix of community openings and closings, we believe our ASP should be over $530,000.
Further, while we’re still investing heavily for growth, our higher community count should lead to revenue growing faster than our overheads in fiscal year 2025, driving our SG&A percentage to be about 11%. Here’s the key point. Even at the low end of each of the ranges, we expect to generate EBITDA that would represent another year of double-digit return on capital employed.
Any improvement in our metrics above the low end of our ranges will drive EBITDA growth and even better returns. Our balance sheet remains healthy with total liquidity exceeding $500 million at the end of the fiscal year, no maturities until October 2027 and more than enough liquidity to fuel our growth aspirations.
We expect to end fiscal 2025 with a net debt to net cap in the low to mid-30s, and we’re on a path to get our net debt to net cap below 30% by the end of fiscal 2026 as our improving profitability and cash generation will delever the balance sheet.
Over the last five years, we’ve been able to sustain a double-digit return on capital and have grown our book value at a 19% compounded annual growth rate even as we’ve increased our land investment. Our capital allocation and execution has increased the quality of our book value and positions us for another year of growth in fiscal 2025.
Since fiscal 2020, we’ve run our total owned and option land position from fewer than 17,000 lots to nearly 28,000 lots. And we’ve done that primarily through increase in our option lots, which have gone from 35% of our total to nearly 60%. In 2025, we expect land spend to grow to around $850 million, and our owned and option lot position to exceed 30,000.
With that, I’ll now turn the call back over to Allan.

Allan Merrill

Thank you, Dave. In summary, 2024 was a successful year for the company as we executed our growth strategy and generated double-digit returns. We’re entering 2025 with a growing community count, a differentiated product strategy and a healthy balance sheet, positioning us to make real progress on our multiyear goals. Finally, I remain convinced we have the team and the strategy to create growing and durable value our stakeholders in the years ahead.
With that, I’ll turn the call over to the operator to take us into Q&A.

Operator

(Operator Instructions) Julio Romero, Sidoti & Company.

Alex Hantman

Hello. This is Alex Hantman on for Julio. Thanks for taking questions.

David Goldberg

Alex. How you doing?

Alex Hantman

Good. How are you?

David Goldberg

Good.

Alex Hantman

Great. Well, thank you very much for sharing the guide. And maybe we could talk a little bit about the community count ramp. I would love to hear how you’re thinking about your confidence in the ramp you’ve outlined in that path for growth?

David Goldberg

Well, look, I would tell you, Alex, we feel pretty confident about the ramp. Obviously, with the growth in the land position that we’ve had and the visibility that we have on communities coming online, we feel real good about the growth that we talked about the 18 to 22 net new communities and ending the year around 180.

Alex Hantman

Thank you. And maybe just touching on sales pacing. Could you talk a little bit about what you’re seeing in October, maybe some improvement relative to September?

Allan Merrill

Yeah, Alex, it’s Allan. Things got better in September. And as rates started to back up a little bit, I was concerned that we might see that slowdown. But frankly, October looked a lot like September. And I was encouraged because we peeled away some of the heavier incentives that we had offered to clear out some older inventory, and we saw a nice pickup in to-be-built sales. So it wasn’t just around more heavily discounted specs.

Alex Hantman

Great. Thank you for the context. Will hop back in queue.

David Goldberg

Thank you.

Operator

Alan Ratner, Zelman & Associates.

Alan Ratner

Hey guys, good afternoon. Thanks as always for all the helpful details so far. So I know it’s tough to give any full year guidance at this point. It’s a pretty rapidly changing environment. But one of the data points I wanted to just drill in a little bit more on is your outlook for absorptions for the year, given the range of 2.5, I guess, at the low end to 3 at the high end. Your absorption pace this year was just under 2.5 per month. And obviously, the year ended challengingly, but it was generally a pretty solid year, especially in the spring.
So I’m curious if you could just talk through a little bit more of your expectations there because it doesn’t seem like you’re anticipating any meaningful improvement in the macro as far as mortgage rates or the economy.
It seems like you’ve pulled back a little bit on those incentives that drove some of the momentum in October. What gives you the confidence that even at the low end of your guidance range that they’ll come in with a better absorption rate in ’25 versus ’24.

Allan Merrill

It’s a great question, Alan. Look, 2.4 was lowest absorption rate we’ve had in a long time, and it was disappointing. — it was characterized by an 8% mortgage rate in the first quarter last year that made the October and November months really challenging. And as I told you and others on the call in August, I feel like we got punched in the mouth by our competitors in May, June, and it took us a minute to find our footing.
I think we had over specked or overspecified the spec homes that we had started, and we were a little bit out of position. And we addressed that. And I think the combination of getting better dialed in and accepting a somewhat larger share of specs as a part of our sales mix and not being in an 8% mortgage rate environment, which is obviously how we started last year, I think those two things together give us confidence we will be back in the range that we’ve historically been in.
Now exactly where in that range, I obviously don’t know at this point, but we are going to be up in sales pace next year this year. Sorry I do that, too. I get confused between September and December. When I said next year, I meant 2025 our fiscal year.

Alan Ratner

No, understood. I appreciate that, Allan. Second question, if I look at your 1Q margin guide 19% adjusted, that would be — I think if our model is right, the lowest margin you’ve generated in over a decade. And I know you’re expecting that to ramp through the year, and I think your explanation makes sense to me.
But we’re starting to hear a little bit of chatter from some land sellers and developers that not necessarily Beazer specific, but some builders are attempting to maybe renegotiate some option terms and take down prices just given the fact that rates have clearly stayed higher than many had expected.
Incentives have remained more elevated. So as you look at where your margin is today and a relatively thinner margin than perhaps some of your peers and maybe where you had expected, are you in the process of maybe trying to take some of your more recent land buys and renegotiate them given the changing macro environment? Or do you feel like as those deals come to market, even with the choppier environment that you’ll still generate margins better than you’re generating today?

Allan Merrill

I mean, because they’re, I mean, literally nearly 100 transactions in flight between LOIs and under contract or just closed. Obviously, answering that is a little tricky because I could cherry pick and answer it one way or I could cherry pick and answer it a different way.
I think we did re-underwrite a bunch of deals through the summer as we were struggling in the sales pace. We walked away from one that I can think of right off the top of my head, and I think we had in the third quarter, $1 million write-off associated with it.
We have renegotiated pricing on a handful of deals. We’ve gotten tougher on our underwriting for new deals. But our ’25 and frankly, our ’26 is largely in place at this point. So I wouldn’t say that there is some wholesale reset that’s available. I think one of the ways to think about it, and I think a little bit about this, what is our finished lot cost as a percentage of our ASP. And I think it’s back to a level where it was in 2000.
We had the benefit ’21, ’22, ’23. And I mean, frankly, everybody did. There was more HPA on top of a historical cost base and that inflated margins. I think land prices are a little bit elevated relative to ASPs. But as I look back to that pre-COVID period, they’re not substantially different than they were then.

Alan Ratner

Great. I appreciate the thoughts. Thanks a lot.

Operator

Tyler Batory, Oppenheimer.

Tyler Batory

Hey, good afternoon. Thanks for taking my questions. A couple for me. And I want to start, Allan, in your prepared comments, you talked about the Zero Energy Ready homes in the benefits that you’re seeing. You alluded to a point of margin higher than the prior series.
Can you just unpack that a little bit more, explain what drives that higher margin. And then when you look at the sales process when you look at construction as well, how much low-hanging fruit is there to improve those and to drive the margin even higher?

Allan Merrill

Well, let me take the second part first because I can’t give you basis points and answers. But directionally, you’ve touched on something that’s hugely important to us. I am incredibly confident we can reduce the cost of delivering Zero Energy Ready.
I mean we are literally the first builder at scale in multiple markets and multiple climate zones to be committed to it. And it has been an enormous effort to retrain trades to set up and strengthen supply chains for the products that are necessary to build these homes.
We have internally some pretty ambitious goals about continuing to improve the quality of our homes, but I think we can deliver a lower cost to get to Zero Energy Ready. The second part of that is on the sales side. And I think we have a tremendous professional sales force.
But they are selling something that hasn’t been available before and figuring out the science of what it is that we’ve done in the home, is terrific. But I got to be honest, most of our buyers don’t care about ACHs and HERS scores.
So we’ve really — we’ve trained the sales team. I think by and large, they know the science. They know the statistics, they know the materials, they know the philosophy that goes into building these homes. The trick is, how do I relate that to each individual that I have a chance to talk to? Is this someone for whom air quality or comfort or really monthly savings is going to resonate better.
And honestly, it’s a little bit like batting practice. I think we just need practice.
I spent a lot of time in the field, and I talked to our new home counselors a lot about this. So I am very confident we can do both of those things that we can establish the value in a way that is very resonant with different buyers and we can reduce the cost. I don’t know how high high it is, but it is certainly a better margin profile than we have right now.
The first part of your question, I think, was about unpacking what the real value of Zero Energy Ready is. And I would refer you to one of the slides in our deck that talks about the indoor air quality and the quality and the comfort.
But let me do a little math with you. I was up in Maryland last I don’t know, two weeks ago at one of our communities. We were hosting an event with a bunch of regulators and others because it’s a big deal. We are now the all-time leader in the clubhouse for having delivered Zero Energy Ready homes. And the annual leader, like we’re the expert in this now, and people are paying attention.
And so I was standing in front of the home, I was making the point that the energy cost on the home in our model is nearly $500 a month lower than a similarly sized home that was for sale across the street, a 20-year-old home. Think about $500 a month in savings. I mean we’re talking $6,000 or $5,500, I think it was $470. So I think it was $5,500 of annual savings.
So I asked my sales team, I said, okay, so $5,000 a month or a year is a lot of money. How much would the mortgage rate have to drop on this home to create a $5,000 savings? And they weren’t all supercomputers. They had to go crunch a few numbers to come back with the answer.
And the answer was mortgage rate would have to drop by more than 1 point on that home in order to realize a similar savings. And it was — I mean, in that moment, it was a little bit of a light bulb boom. And I think for the sales team as we were talking they realize, gosh, this home is effectively equivalent to having a whole point less in your mortgage rate forever because of how energy efficient it is.
So when we talk about what’s really important to a customer for a lot of our customers, that makes a big difference.

Tyler Batory

Okay. Excellent detail. A follow-up question on the incentives. You sound like you ramped up incentives and you pulled back. I guess, which markets did you lean in a little bit more?
Are those the same markets where you’ve been able to pull back? And then when you look ahead to fiscal ’25 it sounds like lower incentives are part of that gross margin improvement. Just talk a little bit more about your confidence in that, your expectations for incentives next year? And maybe just for the industry overall.
I mean it does appear like the competitive environment is pretty robust. There are lots of builders out there that are getting pretty aggressive in terms of what they’re offering. I mean what needs to happen for that to change? I mean, do you think these incentive levels are just here to stay? Is it in a mortgage rate scenario. I’d just be curious your thoughts on all those topics.

Allan Merrill

All right. Well, gosh, there’s a lot there. How about I’ll take a piece of it, I’m going to hand the baton to Dave and let him take a piece of it. But let me talk for just a second about the incentives in the markets. I’m not trying to be a smart aleck, but last quarter, I singled out a couple of markets and said, hey, our sales pace is just not good here, and we’ve got to fix it.
And when I did that, I did it intentionally. It was accurate. But I got to tell you, I made my team in those markets, and I feel very good.
They know who they are. I am happy to say that those are exactly the places we did the things that we said we were going to do. We fixed our spec strategy in terms of what’s the level of specification. But we also reallocated closing costs, price reductions and we lowered prices to be more competitive. So we did all of these things and it led directly in those markets to a dramatic improvement in sales pace.
In fact, I will give a little shout out to Houston because I called on them last quarter. I think between August and September, and I — this number is approximately right.
I know we more than doubled our monthly sales. I know that, that sales pace in October stayed quite elevated even as they were withdrawing the sales incentive. So I feel pretty good about we diagnosed the problem, and I think we applied an appropriate and short-term solution. The good news is it allowed us to sell out of some communities and submarkets and at price points that’s really not our wheelhouse.
And so I don’t think that, that has a long-term lingering effect. And that is certainly part of our margin guide that Q1 has got some stuff in it that’s not in Q2, Q3, or Q4. Now for the full year, I think we said something really important. We expect specs to be 60% of our closings. In my tenure, we’ve never had a year where closings were 60% specs.
And definitely, they have consistently had well for two years in the middle of COVID, they’ve consistently had margins at 2 to 3 points lower than our to-be builts. So that’s predicated or our guide or our outlook is predicated on that. We are accepting that we are in a higher rate environment that’s going to carry a larger spec percentage, and we have reflected in what we’ve shared today, that outcome in our margins.
Now if we get a robust spring selling season where we’re able to, between now really and April, sell a bunch of to-be-builts, our full year margins are going to be better than the low end of that range for sure because that’s really the biggest driver. And then secondarily, if we see any rate relief, there will be some reduction in incentives, and that would flow through as well, but we are not betting on any of that.

David Goldberg

Yeah. Look, the only thing I would tell you, Tyler, is Allan talked about some costs on Zero Energy Ready. I think that’s another opportunity to drive some margin that frankly is not in that low end of our range that we’ve given. But look, I would tell you the 19.5% low end assumes that, that spec margin goes back down to that 2%, 3% differential that we’ve talked about, but not dramatically better than that.

Tyler Batory

Okay. Great. So last question for me, and I don’t want to put you too much on the spot here. I appreciate all the detail for 2025, sometimes updating a model real time can be a little bit treacherous. But just based on the — if I used the low end of your guide, I mean, it sounds like EBITDA should be growing next year.
Do you think you can see EPS growth next year? Or perhaps there’s a tax rate issue that’s impacting the just the different growth rates there on a year-over-year basis.

David Goldberg

Yeah. So let’s start, Tyler, with the tax situation. So in 2024, we were still benefiting from harvesting energy efficiency credits from previous years. So the tax rate is going to be a little bit higher than what we saw as we looked at — as we look forward into 2021, and we gave Q1 guidance on being around 15% that will affect the comparability.
What I would tell you from a return on capital, and we made it pretty clear in our comments, we’re expecting to generate a double-digit return on capital employed. Now this year, we were in 11s, we’d be pretty disappointed if our ROCE was lower than it was this year. But again, we’ve expressed that we expect it to be 10 or better, right?

Tyler Batory

Okay. Alright, I’ll leave it there. I appreciate all the detail. Thank you.

Operator

Jay McCanless, Wedbush.

James McCanless

Hey. Good afternoon, everyone. I just wanted to clarify on the fiscal ’25 guidance, that is adjusted gross margin you’re forecasting to, correct?

David Goldberg

That is adjusted gross margin, Jay.

James McCanless

Okay. And then I guess the next question I have, I guess, could you guys reconcile — and I know you said the community count is going to grow, but there may be some pickups along the way. I guess why try to push on absorptions and get back to a more normal level in the guidance when it doesn’t — it sounds like you’ve got confidence that the count is going to grow, but you’re not sure exactly how quickly it’s going to grow. So I guess, why go aggressive on the guidance given maybe some pitfalls along the way with community count?

Allan Merrill

Well, there are two different things, right, Jay? I mean, community count and pace left-hand right hand. So on the pace side, simply we’ve done better in October. I expect that we’re going to do better than November than a pretty easy comp. And I want us and we expect to sustain better paces.
I don’t think we’ll have the problem next summer that we had this summer. So I think on balance, we ought to be up year over year on pace, and that’s what we’ve guided to.
Separate and apart from that, I mean it’s related clearly, but a different point is we’re entering the year with a bunch more communities. We’re up 20%, so it’s more than 20%. The timing of the new communities coming on and the timing of closeouts, boy, you can miss by a month and slip from one quarter into the other quarter, either because you sold a little faster in that community or a little slower or you had a two-week delay before you were able to grand open because the DOT didn’t get the turn lane put in, those kinds of things can happen.
So what we’ve said is we’re going to be up in average community count between 18 and 22 communities. — get to about 180 at the end of the year. That math all fits. What Dave said, though, is that between the first and the second quarter, I don’t know, we don’t know for sure whether we will be sequentially up from Q1 to Q2.
But Q2 will be up double digits over Q2 a year ago, and Q3 will be up double digits over Q3 a year ago and Q4 will be up double digits over Q4 a year ago. So I think we were just trying to provide some clarity that the sequential move may be a little uneven, but the year-over-year growth is locked in for ’25.

David Goldberg

Yeah, Jay, the only thing I would tell you is — and I understand the question, I would tell you that 1 of the reasons we gave ranges and really focused on words like outlook. There’s a lot of them certainly now. And I don’t think we’re being aggressive. I think we’re trying to give you a low end of what we think could happen.
And if things get better, as Alan said mentioned in a number of scenarios where things could get better, then yes, we’d expect to be toward the high end of the range.

James McCanless

Okay. And then just the last question I had, with what you guys are going to open on community count and given what seems to be better demand across the industry for move-up, whether it’s first or second move-up homes, do you have any flexibility to change some of this product up to go from — to bring that 60% spec down, which I’m assuming most of that’s going to be entry level, bringing some of that down and put it out there as to-be-built? Or is your mix that’s 60% pretty locked in with what you’re opening on the community front this year?

Allan Merrill

So Jay, I really appreciate this question. But respectfully, I want to disconnect something for you. When we say specs and you left to that’s entry level. I wouldn’t think about it that way in the case of Beazer. I mean in any given community, if we’re going to sell, let’s say, 50 homes in a year, maybe 30 of them are specs in that community, 20 of them are to to-be-builts or some other ratio, but it’s not like the specs or other communities.
You follow me. So we don’t have to position different communities. It’s just the mix within the communities that we have. And clearly, we are not the price leader in the market.
So I don’t know that I call us a move-up builder, but there are — in every market we’re in, there is a builder with a home with a lower price. Absolutely, when you’re building Zero Energy Ready, that is not the least expensive home. It’s a better home. Now it may be 2,000 square feet, it may be 3,000 square feet. It may cost $400,000, it may cost $1 million in a given market.
And for us, the average as David said, is going to be about 530. But it’s not — our specs are not entry-level product. We really don’t do that.

David Goldberg

Look, I would tell you, Jay, the commitment to get to 100% Zero Energy Ready is exactly the monster of it, right? All the homes we build specs are to-be-builts are very, very high quality.

James McCanless

Okay. Got it. Great. Thanks.

David Goldberg

You got it, buddy.

Operator

(Operator Instructions) Alex Rygiel, B. Riley.

Alexander Rygiel

Thank you. Nice quarter, gentlemen. Are — any chance you could go around the country and talk to us a little bit about some of the strengths and weaknesses across the different geographies?

Allan Merrill

Yeah, I’d be happy to tell you that. I have to offer you, though, my traditional surgeon general health warning, which is when we see a market perform really well, maybe it’s because we’re awesome. We did great. And maybe it’s because the market did great. And I’ll try and differentiate that.
We had an interesting mix of — in the fourth quarter, in particular. We had an interesting mix of markets in very disparate locations and price points that did pretty well. I mean I would highlight our Virginia team did a nice job, our Myrtle Beach team. That’s a very different buyer that we see in Myrtle Beach than what we see in the closer in suburbs of D.C. and Virginia, Atlanta was pretty good.
And then out West for us, Las Vegas and Northern California really showed up. And I think in those markets, they were generally healthy conditions. So part of it’s got to be us, but I think part of it was probably the market. where we struggled in the third quarter was in Texas. And I think a lot of it was us, candidly, and I think we’ve addressed that, and I feel pretty good about where we are in Texas.
We’re just not very big in some of the other major markets. And so I just feel like our experience good or bad is a little bit more idiosyncratic. And I’d be reluctant to comment on them because I don’t want to make a comment. For example, about a Phoenix, level because, Gosh, there are seven or eight builders there that are doing 5 times to 10 times the volume we are, they can probably give you a better read on the market. And I can only tell you how our handful of communities there did.

Alexander Rygiel

Very helpful. And then it sounded like in September and October, dirt builds actually picked up a little bit. But yet your messaging is for the next 12 months to expect the mix shift towards more spec builds. So if you could maybe reconcile those two.

Allan Merrill

Yeah. It’s coming off of a crazy high number. I mean August was 70-ish percent of specs and September was a little bit lower than that and October was lower than that. So trend is definitely in the right direction in terms of a little bit more strength in the to-be-builts. But candidly, it was still a majority of specs.
It just wasn’t as exaggerated a majority as we experienced in July and August. So the 60% reflects a higher level than normal for us, but certainly better than where we were in August and September.

Alexander Rygiel

Super helpful. Thank you.

Allan Merrill

Thanks, Al.

Operator

Alex Barron, Housing Research Center.

Alex Barron

Hey, guys. Thank you and I appreciate all the details. I was hoping you could elaborate what changed in the example you gave of Houston where the sales doubled if you could give more specifics on what’s driving the confidence in the increase in sales pace you guys are expecting this year?

Allan Merrill

Well, I think in the specs in particular, in Houston, some of the things that we did, and let me be clear, we took some lower margins like that helped. But I think we had overspec’d the specs, the flooring, the cabinet, the countertops, I think we aimed a little high and we found ourselves out of the market.
And I think a very detailed review of that spec level proved that we were put money in the home that we weren’t getting paid for. And so we had to get over ourselves, fix it, and the next spec start didn’t have it.
But we did other things. We took our closing costs away and moved it into a price reduction, or we substantially reallocated the incentive to price reductions. Sometimes it’s a simple, honestly, is geography. If you’re advertising [419] with $40,000 incentive, you might be better off advertising [379]. And I think it was some things like that, that we did.
Now in fact, there were some margin consequences we were very scalpel-like as it related to specs and closeout communities.
And I think it was a combination of getting those communities working and then just dialing in a little bit our strategy with specs and to-be-built pricing that has helped us sustain a heavier or a healthier level of activity.

Alex Barron

Got it. Yeah. No, it makes a ton of sense, I think, taking a little bit less margin if you can double your sales or 30% increase in your sales makes a ton of sense. Now that you guys are building more specs, are you by the same notion, offering either forward commitment or a share — sorry, rate buydown or something that causes people to absorb those before they get to completion?

Allan Merrill

Well, I mean we’ve always had a temporary and permanent buy-down set of options for our customers. I feel like our mortgage choice program gives us a great lineup. We get multiple lenders bidding effectively for that customer’s business. And if a short-term buy down to conserve some cash is important, they can do that. a permanent buy-down so that they can qualify is important.
We get proposals or our customers get proposals for that. So yeah, we’ve got the full arsenal of mortgage tools. And I would argue really more than most because literally every customer in order to get our closing cost incentive, one of our policies is you have to get more than one loan proposal. So we know our customers are getting the benefit of choice.

Alex Barron

Got it. And if I could ask one last one, any thoughts on share buybacks, given your stock is still below one-time book?

Allan Merrill

No, Jay, I would — Alex, excuse me, I would tell you, we always think about this the same way. We think about excess capital and excess liquidity in the business. And we think about risk-adjusted returns. And so while we’re not certainly opposed if it’s the highest risk invested return with our excess capital, we certainly think about it and it’s an arrow in the quiver. That said, the primary focus as it has been for a while has been land spend growth and that’s not going to change.

Alex Barron

Okay. Best of luck, guys. Thank you.

Allan Merrill

Thanks, sir.

Operator

Alan Ratner, Zelman & Associates.

Allan Merrill

Oh, am I in trouble now, Alan?

Alan Ratner

No. Thank you for squeezing me in again. Well, I’m not sure it’s a softball, but I’m curious.

Allan Merrill

I know you too well to expect a softball, my friend. So I’m ready.

Alan Ratner

Absolutely. Well, I’m surprised it didn’t come up, which is why I hop back in. So we’re a week post election and obviously, still a few months away from the administration change. But just curious, as you think about all the proposals and discussions that have been thrown out there up to this point related to a whole host of issues, any thoughts about how — what impact, if any, like the discussion about, for example, mass deportation, does that concern you at all as far as labor availability, anything about GSE reform? Just a jump ball here, but curious if you’ve given any thoughts to the upcoming administration change.

Allan Merrill

Well, I’m going to dodge GSE reform because, as you know, I’m on the board at one of the GSEs. But I would say, as we talk about other issues, I think there puts and takes so far, little cast in stone, as you point out. I would tell you it’s fairly significant.
One of the three lines in our comments this quarter is a a realization that it is more likely than not that rates stay elevated compared, frankly, to what I thought 90 days ago. I mean we were on a pretty good rate of decline in mortgage rates through July, August and the beginning part of September.
And that’s all gone away. In fact, I think rates are 50 basis points higher today than they were the last time we talked.
I think we have accepted that whether it’s reduction in taxes or more spending or some combination thereof, there is some realistic chance that mortgage rates, notwithstanding Fed action, could stay elevated. So that’s one thing that we’ve internalized and we could be wrong.
But that’s and assumption that we’ve made that’s different. As I think about the growth side, I do feel like when you start talking about and actually doing some level of deregulation and creating clarity on tax cuts or tax levels and there’s less fear of adverse changes. I think that will be pretty helpful from an enthusiasm in the economy standpoint.
Now the third leg, and you mentioned it, is around immigration policy, and I’m — it’s a super tricky issue. Like the level of undocumented and other than entirely legal immigration that took place is clearly had all sorts of impacts on our society. I don’t think that they are broadly employed in the housing sector.
The policies that we have that we require our trades to have would suggest that they’re not direct beneficiaries. But of course, if a number of people are withdrawn from the country who are doing other jobs, does that create some competition for labor that changes the dynamic, that could certainly happen.
I think as ambitious as that mandate is. I think the details of it are far from clear. The timing of it is far from clear. So I’ve got my eye on it, but I can’t make any an intelligent projection about what exact effect it will have. The two we felt pretty good about.
I do think there’s going to be a little more confidence with rates and tax rates and regulations. And I think we’re likely going to pay for it in the form of higher mortgage rates.

Alan Ratner

Very helpful. Thanks, again.

Allan Merrill

You’re welcome.

Operator

Thank you. And we are showing no further questions at this time.

David Goldberg

All right. I want to thank everyone for joining us on our fiscal fourth quarter call and we look forward to talking to everybody next quarter. Thank you so much. This ends today’s call.

Operator

Thank you. That does conclude today’s conference. Thank you for participating. You may disconnect at this time.