Gross Margin Decline
Q: Why is gross margin expected to decline?
A: Gross margins are expected to decline to 22.5% in Q1, mainly due to higher incentives and increased costs of rate buydowns as mortgage rates rise and become more volatile. The margin in September was lower than in August, and this trend is expected to continue.

2025 Delivery Outlook
Q: How are delivery numbers expected to change in 2025?
A: The company guides for 90,000 to 92,000 deliveries in 2025, supported by improved cycle times and the ability to ramp up starts in the spring. They feel confident in turning their housing inventory 1.5x in fiscal 2025.

Buyer Hesitation Due to Market Conditions
Q: Why are buyers sitting on the sidelines?
A: Buyers are less motivated due to rate volatility, affordability challenges, and election-related uncertainty. The combination of higher mortgage rates and market noise has led people to pause their purchasing decisions.

Addressing Affordability Challenges
Q: How is the company addressing affordability issues?
A: The company is focusing on building smaller, more affordable homes, adjusting product selection, and improving efficiencies with trade partners to reduce costs and offer homes that buyers can afford.

Rising Incentive Costs
Q: Are increased incentives impacting margins?
A: Yes, higher incentives are necessary to maintain affordability for buyers amid rising rates, which is increasing costs and putting pressure on margins. The cost of rate buydowns has increased due to higher mortgage rates.

Land and Material Cost Trends
Q: How are land and material costs trending?
A: Lot costs increased by a high single-digit percentage this quarter and are expected to continue rising at a mid-single-digit rate. Stick and brick costs were down 1% sequentially and 2.5% year-over-year, with expectations of relatively flat costs moving forward.

Unsold Inventory Levels
Q: Are there concerns about rising unsold inventories?
A: The rise in completed unsold inventory is not a concern and has no geographic concentration. It is due to improved cycle times and sales slightly below expectations, and they expect this inventory to trend down over the next few quarters.

Market Share Growth Strategy
Q: Will the company focus on market share growth in 2025?
A: The company is well-positioned with lot inventory and is prepared to respond to market conditions. Operators have higher goals, and they feel confident in their ability to lean into the market if it strengthens, though the guidance reflects current expectations.

Cancellation Rates Stable
Q: Has the cancellation rate increased significantly?
A: The cancellation rate ticked up slightly but remains in line with the prior year, and is within a comfortable range for management.

Shift to Smaller Homes
Q: Is the company building smaller homes to improve affordability?
A: Yes, average home size decreased by 1% sequentially and year-over-year, as the company leans towards smaller plans to address affordability and position for the spring market.