$DHI D.R. Horton Q4 2024 Earnings Conference Call

Good morning and welcome to the fourth quarter 2024 earnings conference call for DR Horton, America's Builder, the largest builder in the United States. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you wish to enter the Q&A, please press star one on your phone at any time. I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for DR Horton.

Thank you, Tom, and good morning. Welcome to our call to discuss our fourth quarter and fiscal 2024 financial results. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although DR Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to DR Horton on the date of this conference call, and DR Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about factors that could lead to material changes in performance is contained in DR Horton's annual report on Form 10-K and our most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission. This morning's earnings release can be found on our website at investor.drhorton.com, and we plan to file our 10-K in about three weeks. After this call, we will post updated investor and supplementary data presentations to our investor relations site on the presentation section under News and Events. For your reference, now I will turn the call over to Paul Romanowski, our President and CEO.

Thank you, Jessica, and good morning. I'm pleased to also be joined on this call by Mike Murray, our Executive Vice President and Chief Operating Officer, and Bill Wheat, our Executive Vice President and Chief Financial Officer. The DR Horton team produced solid results to finish the year, highlighted by consolidated pre-tax income of $1.7 billion on revenues of $10 billion with a pre-tax profit margin of 17.1%. Earnings per diluted share for the fourth quarter were $3.92. For the year, earnings per diluted share increased 4% to $14.34, and our consolidated pre-tax income was $6.3 billion on revenues of $36.8 billion with a pre-tax profit margin of 17.1%. Our home building pre-tax return on inventory for the year was 27.8%, return on equity was 19.9%, and return on assets was 13.9%. Our return on assets ranks in the top 25% of all S&P 500 companies for the past three, five, and 10-year periods.

Our consolidated cash flow from operations for 2024 was $2.2 billion, and we returned all of the cash we generated this year to shareholders through repurchases and dividends. Our fiscal 2024 shareholder distributions increased by approximately $700 million, or 44%, from the prior year. Over the past five years, we have generated $9 billion of cash flow from operations, and we have reduced our outstanding share count by 12%. For the quarter, despite continued affordability challenges and competitive market conditions, our net sales orders increased slightly from the prior year. Our sales pace was in line with normal seasonality from the third to fourth quarter, but below our expectations. While mortgage rates have decreased from their highs earlier this year, many potential homebuyers expect rates to be lower in 2025. We believe that the volatility of rates combined with general uncertainty during the election season is causing some buyers to stay on the sidelines in the near term. To help spur demand and address affordability, we are continuing to use incentives such as mortgage rate buy-downs, and we have continued to start and sell more of our smaller floor plans, with 46% of fourth quarter closings also sold in the same quarter. Our sales incentive levels and gross margin are generally representative of current market conditions.

We typically experience seasonally slower demand during the fall, and our tenured local operators seek to find the right balance of sales pace, pricing, and incentives in each community that will best position our returns and inventory levels before we enter the spring. For the full year of fiscal 2025, our home building volume and profit margins will largely be dependent on the strength of the upcoming spring selling season. Overall, the demographics supporting housing demand are favorable, and we continue to see a generally limited supply of both new and existing homes at affordable price points, in addition to a limited supply of finished lots available for new home construction. With our focus on affordable product offerings, 37,400 homes in inventory, continued improvement in our construction cycle times, and adequate finished lots available on our pipeline, we are well positioned for fiscal 2025.

Mike, earnings for the fourth quarter of fiscal 2024 decreased 12% to $3.92 per diluted share compared to $4.45 per share in the prior year quarter. Earnings for the full year increased 4% to $14.34 per diluted share compared to $13.82 in fiscal 2023. Net income for the quarter decreased 15% to $1.3 billion on consolidated revenues of $10 billion, and for the year, net income increased slightly to $4.8 billion on revenues of $36.8 billion. Our fourth quarter home sales revenues were $8.9 billion on 23,647 homes closed compared to $8.8 billion on 22,928 homes closed in the prior year. Our average closing price for the quarter was $377,500, down 1% both sequentially and from the prior year quarter. Bill, our net sales orders in the fourth quarter increased slightly from the prior year quarter to 19,335 homes, and order value decreased 2% to $7.1 billion. The sequential decline in our net sales orders was consistent with the prior year and in line with normal seasonality from the third to the fourth quarter, but both our home sales and closings this quarter were below our expectations. Our cancellation rate for the quarter was 21%, up from 18% sequentially and unchanged from the prior year quarter. Our average number of active selling communities was flat sequentially and up 10% from the prior year. The average price of net sales orders in the fourth quarter was $375,500, down 1% sequentially and 2% from the prior year quarter. Jessica, our gross profit margin on home sales revenues in the fourth quarter was 23.6%, down 40 basis points sequentially from the June quarter. The decrease in our gross margin from June to September was primarily due to higher incentive costs on homes closed during the quarter. On a per square foot basis, home sales revenues were down roughly 0.5% sequentially, while stick and brick cost per square foot decreased 1% and lot cost increased 1.5%. We anticipate our incentive levels to increase further on homes closed over the next few months, so we expect our home sales gross margin to be lower in the first quarter compared to the fourth quarter. Our incentive levels and home sales gross margin for the full year of fiscal 2025 will be dependent on the strength of demand during the spring selling season, in addition to changes in mortgage interest rates and other market conditions. Bill, in the fourth quarter, our home building SG&A expenses increased by 17.7% from last year, and home building SG&A expense as a percentage of revenues was 7.6%, up 100 basis points from the same quarter in the prior year. For the year, home building SG&A was 7.5% of revenues, up 40 basis points from fiscal 2023. Our increased SG&A costs in both periods are primarily due to the expansion of our operating platform. Our employee and average community count are both up 10% from a year ago, while our market count increased to 125 markets in 36 states from 118 markets in 33 states.

Paul, we started 18,400 homes in the September quarter and ended the year with 37,400 homes in inventory, down 11% from a year ago and approximately 5,000 homes lower than at the end of June. 25,700 of our total homes at September 30th were unsold. 10,300 of our unsold homes at year end were completed, of which 1,100 have been completed for greater than six months. The increase in unsold completed homes this quarter resulted from a combination of a seasonally slowing sales pace and further improvement in our construction cycle times. For homes we closed in the fourth quarter, our cycle time decreased by almost a week from the third quarter and a month from a year ago. Our improved cycle time positions us to turn our housing inventory faster in 2025, and we will continue to manage our homes in inventory and starts pace based on market conditions. Mike, our home building lot position at September 30th consisted of approximately 633,000 lots, of which 24% were owned and 76% were controlled through purchase contracts. We remain focused on our relationships with land developers across the country to maximize returns. These relationships allowed us to build more homes on lots developed by others. Of the homes we closed during the fourth quarter, 64% were on a lot developed by either Fourstar or a third party, up from 62% in the prior year quarter. Our capital efficient and flexible lot portfolio is a key to our strong competitive position. Our fourth quarter home building investments in lots, land, and development totaled $2.2 billion, of which $1.5 billion was for finished lots, $560 million was for land development, and $170 million was for land acquisition. For the year, our home building investments in lots, land, and development totaled $9.5 billion, up 19% from fiscal 2023.

Paul, in the fourth quarter, our rental operations generated $100 million of pre-tax income on $75 million of revenues from the sale of 1,692 single-family rental homes and 868 multifamily rental units. For the full year, our rental operations generated $229 million of pre-tax income on $1.7 billion of revenues from the sale of 3,970 single-family rental homes and 2,222 multifamily rental units. We continue to operate a merchant build model in which we construct and sell purpose-built rental communities. Our rental operations provide synergies to our home building operations by enhancing our purchasing scale and providing opportunities for more efficient utilization of trade labor and land parcels. Our rental property inventory at September 30th was $2.9 billion, which consisted of $800 million of single-family rental properties and $2.1 billion of multifamily rental properties. We expect our total rental inventory to remain around the current level for the next several quarters. Jessica, Fourstar, our majority-owned residential lot development company, reported revenues of $551 million for the fourth quarter on 5,374 lots sold with pre-tax income of $19 million. For the full year, Fourstar delivered 15,068 lots, generating $1.5 billion of revenues and $270 million of pre-tax income with a pre-tax profit margin of 17.9%. Fourstar's owned and controlled lot position at September 30th was 95,000 lots. 65% of Fourstar's owned lots are under contract with or subject to a right of first offer to DR Horton. $430 million of our finished lots purchased in the fourth quarter were from Fourstar. Fourstar had approximately $860 million of liquidity at year end with a net debt to capital ratio of 12.4%. Our strategic relationship with Fourstar is a vital component of our returns-focused business model. Fourstar's strong separately capitalized balance sheet, growing operating platform, and lot supply position them well to capitalize on the shortage of finished lots in the home building industry and to aggregate significant market share over the next several years.

Mike, Financial Services earned $76 million of pre-tax income in the fourth quarter on $222 million of revenues with a pre-tax profit margin of 34.2%. For the year, Financial Services earned $311 million of pre-tax income on $883 million of revenues with a pre-tax profit margin of 35.3%. During the fourth quarter, essentially all of our mortgage company's loan originations related to homes closed by our home building operations, and our mortgage company handled the financing for 77% of our buyers. FHA and VA loans accounted for 60% of the mortgage company's volume. Borrowers originating with DHI Mortgage this quarter had an average FICO score of 724 and an average loan-to-value ratio of 88%. First-time home buyers represented 59% of the closings handled by our mortgage company this quarter. Bill, our capital allocation strategy is disciplined and balanced to sustain an operating platform that produces consistent returns, growth, and cash flow. We have a strong balance sheet with low leverage and substantial liquidity, which provides us with significant financial flexibility to adapt to changing market conditions and opportunities. During fiscal 2024, our consolidated cash provided by operations was $2.2 billion, and we distributed all of the cash we generated through share repurchases and dividends to enhance shareholder returns. During the quarter, we repurchased 3.4 million shares of common stock for $561 million, and for the year, we repurchased 12.5 million shares for $1.8 billion, which reduced our outstanding share count by 3% from the prior year end. Our remaining share repurchase authorization at September 30th was $3.6 billion. During the quarter, we also paid cash dividends of $98 million, for a total of $395 million of dividends paid during the year. At September 30th, we had $7.6 billion of consolidated liquidity, consisting of $4.5 billion of cash and $3.1 billion of available capacity on our credit facility. In August, we issued $700 million of senior notes due 2034. Our debt at September 30th totaled $5.9 billion. Subsequent to year end, we repaid $500 million of senior notes at maturity, and we have no additional maturities in fiscal 2025. Our consolidated leverage at September 30th was 18.9%, and leverage net of cash was 5.2%. We plan to maintain our leverage around 20% over the long term. At September 30th, our stockholders' equity was $25.3 billion, and book value per share was $78.22, up 15% from a year ago. For the year, our return on equity was 19.9%, and our return on assets was 13.9%. Based on our strong financial position and cash flow, our board recently increased our quarterly cash dividend by 33% to 40 cents per share.

Just looking forward, our fiscal 2025 business plan was built from the community level up, beginning with our lot position. With a return to more normal seasonality, we expect our results for the full year will largely be dependent on the strength of the spring. As outlined in our press release this morning, for the full year of fiscal 2025, we expect to generate consolidated revenues of approximately $36 to $37.5 billion, and homes closed by our home building operations to be in the range of 90,000 to 92,000 homes. We forecast an income tax rate for fiscal 2025 of approximately 24.5%. We expect to generate more cash flow from operations in fiscal 2025 than fiscal 2024, and to utilize a substantial portion of our cash flows to enhance shareholder returns. We currently plan to repurchase approximately $2.4 billion of our common stock this year, in addition to making annual dividend payments of around $500 million. For our first fiscal quarter ended December 31st, we currently expect to generate consolidated revenues of $6.8 to $7.3 billion, and homes closed by our home building operations to be in the range of 17,500 to 18,000 homes. We expect our home sales gross margin in the first quarter to be around 22.5%, and home building SG&A as a percentage of revenues to be approximately 8.9%. We anticipate a financial services pre-tax profit margin of around 20% in the first quarter, and we expect our income tax rate for the quarter to be approximately 24.5%. Paul, in closing, our results and position reflect our experienced teams, industry-leading market share, broad geographic footprint, and focus on affordable product offerings. All of these are key components of our operating platform that sustain our ability to produce consistent returns, growth, and cash flow while continuing to aggregate market share. We have significant financial flexibility, and we plan to maintain our disciplined approach to capital allocation and provide consistently high returns to our shareholders to enhance the long-term value of our company. Thank you to the entire DR Horton family of employees, land developers, trade partners, vendors, and real estate agents for your continued efforts and hard work. We look forward to working together to improve our operations and provide home ownership opportunities to more individuals and families during 2025. This concludes our prepared remarks. We will now host questions.

Thank you, ladies and gentlemen. The floor is now open for questions. If you wish to ask a question at this time, please press star one on your keypad. Should you wish to remove yourself from the queue, you may press star two. We do ask that if you are listening on a speakerphone this morning, you pick up your handset while asking your question to provide optimal sound quality. Finally, we do ask that you limit yourself to one question and one follow-up. Please hold a moment while we poll for questions. And your first question this morning is coming from Stephen Kim from Evercore ISI. Stephen, your line is live. Please go ahead.

Yeah, thanks very much, guys. Appreciate the color. Wanted to ask a couple of questions regarding your guide. First of all, I think in particular, your revenue guide can be influenced a lot by rental revenue, and the other factor that you didn't give was also the ASP for closing. So I just wanted to see if you could help us disaggregate a little bit. What are you assuming in terms of rental revenue, maybe sequentially or year over year, however you think is best? I'm thinking about it in revenue dollars, and both for the first quarter and for the full year guide.

Gotcha, okay. Yeah, that's helpful. All right. And then second question, I wanted to sort of delve a little bit into your comment about market conditions, which I think we all realize is tough out there. But in particular, you talked about how you think that buyers are sort of on the sidelines, maybe waiting for the election, maybe just affordability. So I wanted to see if we could disaggregate that. Can you talk about what you're seeing with respect to your interest lists or traffic, and help us maybe draw a distinction between what you're seeing today versus what you saw in other previous times when buyers kind of went on strike, like maybe the back half of calendar 2022? Just to help us get a better sense of how much of this is actual true unaffordability versus psychological effects causing people to wait on the sidelines.

Just a clarification there. Are you looking for mortgage rates to come down next year? Is that what's embedded in your guide?

Gotcha, okay. Thank you so much.

Thank you. Your next question is coming from Matthew Bouley from Barclays. Matthew, your line is live. Please go ahead.

Good morning, everyone. Thank you for taking the questions. So, looking at the delivery guide of 90 to 92,000 in 2025 and comparing that versus the 37,000 homes in inventory you have at the moment, I guess that ratio is maybe a little bit higher than it typically is. So during the year, is there kind of an expectation for a bigger ramp in starts as you get into the spring, or are you saying that cycle times have come down to such a degree where you can have that kind of ratio where it is? Thank you.

Matt, I think we're looking at both actually to come into play in 2025. We have seen tremendous improvement in our cycle times over the past year and continuing through the fourth quarter. With our lot position that we have, our ability to lean into starts with the market as we see the market unfold, we'll be able to press into the starts, and we feel really good about our ability to turn that opening housing inventory. You know, what it implies is almost one and a half times in fiscal 25. Yeah, so for the first quarter, our starts probably only step up slightly from where they were in Q4, and they're lower than the average for the full year, so we would expect a pick up as we move into the spring.

Right, okay. Got it. Thank you for that. And then on the topic of building smaller floor plans, apologies if I missed the number, but I guess what was your home size down in Q4 and what is the expectation for home sizes that you're embedding in 2025? And beyond just the numbers, I'm curious if you could speak about that balance of affordability versus how you think about the efficiency of building smaller homes. So kind of what goes into that decision. Thank you.

Yeah, I'll start with the specifics and then Paul can give you his commentary on where he thinks we're going. In terms of square footage for the quarter, we were down again both 1% sequentially and year over year. Part of that driver is we continue to see attached product, predominantly townhomes, making up a bigger percentage of our closings mix. So we were roughly 15% of our closings this quarter were attached product versus detached single-family homes. And I do see efficiency in the smaller plans, and that helps us to position as we enter into the spring market for our ability to deliver. We have purposefully reduced the number of homes we have in the market because of that ability. No significant shift overall other than we just need to continue to drive to affordable price points and affordable monthly payments, and that comes from a lean towards smaller product. That being said, we still do have our move-up and freedom buyers that will continue to provide what it is that they're looking for in the marketplace.

All right, thanks guys. Good luck.

Thank you. Your next question is coming from John Lalo from UBS. John, your line is live. Please go ahead.

Good morning, guys. Thanks for taking my questions as well. The first one is that I think you described the inventory in the market as generally limited supply of new and existing homes. Just curious if you saw some worsening in that trend as the quarter progressed, and if so, are there particular markets where you're seeing more inventory come online? And how are you feeling about overall conditions in that regard?

You know, the overall numbers haven't grown significantly. I think with the low number of sales, you're seeing the months of supply continue to expand, but still at the price points that we compete at, we see limited supply across most of our markets. And with people still in the lock-in effect still impacting people from the low mortgage rate that they have, we're just not seeing that supply grow in a significant way. We still feel very good about our competitive abilities with a new home, ability to offer a more attractive rate, and in markets where there's pressure on insurance, we see consistent and relatively stable insurance premiums which are a competitive advantage against the resale market.

Understood. And then on the first quarter gross margin outlook of 22.5%, that 110 basis points step down, I think you guys attributed the majority of that to just step up in incentives. Just want to make sure that that is the case, and if so, can you just help us with what are current incentive levels as a percentage of revenue and where you're expecting those to trend over the next few months?

Got it. Thank you, guys.

Thank you. Your next question is coming from Carl Reikart from BTI. Carl, your line is live. Please go ahead.

Thanks.

Everybody, just one two-parter. Can you talk at all about any impact from hurricanes on ops, traffic, the communities themselves? And then has there been any positive or negative impact given your reliance on buyers' brokers? It's a big focus for you, has been for a long time. Any impact from the settlement to driving traffic, sales rates at all or costs?

All right, thanks for that. And then you talked about employee and average store count up quite a bit in fiscal '24. As you're looking at '25, what are your expectations for what we might see in terms of a flattening of that store count growth or a slowdown in the number of new markets you'd add so that we know we might get better SG&A leverage next year, or do you expect to continue to grow those pretty aggressively? Thanks.

Thank you. Your next question is coming from Sam Reed from Wells Fargo. Sam, your line is live. Please go ahead.

Awesome, thanks so much. So it sounds like gross margin moved lower in quarter September versus July and August. And as you look to your guidance for the fourth quarter, that 22.5%, is that in line with the exit rate from the last quarter, or does it imply that November and December will be below October levels?

And then wanted to touch on your completed unsold inventories around 10,300. Just wanted to see if there was any detail specifically on geographic dispersion, whether you're seeing a concentration of completed unsold inventories in some of the focus markets that investors are interested in like Florida and Texas. Thanks.

Great, thanks so much. I'll pass it on.

Thank you. Your next question is coming from Michael Rehaut from J.P. Morgan. Michael, your line is live. Please go ahead.

Great, thanks. Good morning everyone. Appreciate you taking my questions. Want to delve a little bit into regional color if possible, and apologies if I missed this earlier, but with all the focus on Florida and Texas obviously and around inventory levels, I know that you've kind of stated a couple times that you feel like that perhaps on a broad basis is not an issue, but just trying to get a sense when you think about particularly the guide, you kind of flat to up low single digits for closings, does that reflect any regional challenges or maybe just more broadly if you can kind of give us a sense of where you feel demand is stronger versus weaker across your footprint.

Okay, no, appreciate that. I guess secondly, you mentioned that throughout the quarter, September was your lower margin month with higher incentives. I was curious and again apologies if I missed this earlier, but wanted to get a sense just from a demand and order growth standpoint, sales pace standpoint, we've heard some of your competitors talk to September being the strongest month of the quarter, and was just kind of wondering if that's what you saw from a sales pace or an order growth standpoint. Obviously rates fluctuated a lot during the quarter, but there was perhaps at points into September a little bit of a lower point from a rate standpoint, so just kind of curious on what you saw, how things trended during the quarter, and where September was relative to the rest.

Okay, very good. Thanks so much.

Thank you. Your next question is coming from Alan Ratner from Zelman and Associates. Alan, your line is live. Please go ahead.

Hey, good morning guys. Thanks for the time and info so far. My question I guess relates to just the broader strategy that you've had as long as we've been covering Horton, which is to consolidate market share. And I guess what I'm thinking about is you've heard from several other of your larger peers a goal or a target to grow in '25 by a 5 to 10% rate on closings, orders, whatever the metric they're looking at, and your guide is obviously a bit below that in '25, and I know it's preliminary and I know it can obviously move around based on how the spring unfolds, but on the surface right now it would look like at least in the near term you don't expect to be taking a significant amount of market share. So I'm curious when you think about that outlook, is that a function of you see maybe some more aggressive incentives out in the market from some of your competitors that you don't feel the need or the desire to match right now to do what you need to do to actually take share? Do you think that some of the guides out there might prove to be too aggressive? Is it a function of a price point differential, maybe stronger activity at higher price points? Just curious if you can kind of talk about the competitive dynamics that would seemingly set you guys up for a year of no meaningful share growth.

Got it. That's helpful. I appreciate that. And then second question is kind of around the spec strategy. I know obviously you and others have pivoted to kind of 100% spec model over the course of the last several years, somewhat out of necessity given the supply chain, somewhat out of that's where the demand was given the tight resale market. But we've talked about this in the past where even though you never were a huge built-to-order builder by any stretch of the imagination, that was always at least some portion of your business. And I'm curious now with where your spec position is, where your backlog is, is there any thought of maybe returning to some extent to the build-to-order market, especially if the demand in the spring turns out to be showing signs of acceleration?

Makes sense. All right, thanks a lot. Appreciate it.

Thank you. Your next question is coming from Eric Bosshard from Cleveland Research Company. Eric, your line is live. Please go ahead.

Thanks. Two things if I could. The increased incentive spend, just a little more clarity. Is this you investing more, lowering the cost for your customers, and is that the strategy, or is this just it's gotten more expensive as rates ticked back higher? Just where we are and what the strategy or vision for that is.

Okay. And then second question, which is likely potentially redundant, I'll ask it nonetheless. You talk about this phenomenon of affordability challenges. Your solution for affordability challenges: incentives, a bit more smaller homes. Is there anything beyond that or incremental to that? If you look at one of the key limiting factors is this phenomenon of affordability, any other solutions that you see that you can help address that to unlock more demand?

Thank you.

Thank you. Your next question is coming from Paul Prisi from Wolfe Research. Paul, your line is live. Please go ahead.

Thank you. Your cancellation rate increased a little bit quarter over quarter. I was wondering, are accelerating incentives creating any issues with backlog right now? And historically, down payments have been the greatest impediment for the entry-level buyer. Is that still the case, or has that shifted more to a DTI or monthly payment constraint?

Okay. I was wondering what was your average 4Q rate promotion, how did that compare to 3Q, and what is it so far in October?

Great, great. Thank you. I appreciate it.

Thank you. Your next question is coming from Anthony Pettinari from Citi. Anthony, your line is live. Please go ahead.

Good morning. You had pretty favorable stick and brick costs in the quarter, and I was just wondering how you saw those trending in 1Q. And then, referencing maybe John's question, is it fair to say stick and brick is not really driving a big move in margins quarter over quarter in terms of that step down?

Got it. Got it. And I'm just curious, I mean with the election coming up, are there one or two issues that you could see impacting the industry from a builder perspective or buyers that you'll be really watching as we see how it plays out?

Sounds good. Sounds good. Thanks guys.

Thank you. Your next question is coming from Ken Zener from Seaport Research Partners. Ken, your line is live. Please go ahead.

Good morning everybody.

Yes, I just want to check. Thank you. All right. Obviously not what the street or probably what you all were expecting, but I just want to go through a few basic thoughts here. First, do you think part of the issue is on the slowing supply given the whole narrative of tight supply in terms of under construction? Is that in most markets because the builders are so dominant, the new home buyers already have been in a rate neutral environment because most new builders are offering incentives? That seems to me like you might have pulled forward demand given that you still have these incentives, or do you think it's strictly an issue of affordability, therefore that affects your long-term view on gross margins?

And do you want to comment? I think some point over the last couple years you talked about structurally higher gross margins in contrast to what had been a 19 or 20% time under prior management. Do you still have confidence that your gross margins can be structurally higher for you guys, or do you perhaps have the view that at current rates the affordability is actually a bigger issue given the persistency of these incentives? Thank you.

Thank you.

Thank you. Your next question is coming from Rafe Jadrosich from Bank of America. Rafe, your line is live. Please go ahead.

Hi, good morning. Thanks for taking my questions. You spoke about the stick and brick inflation that you're expecting. Can you talk about what you're anticipating for land inflation in the first quarter and then through 2025?

Okay, that's really helpful. And then just putting that all together, how do we think of what level of net price you would need in fiscal '25 to hold margins?

Okay, that's really helpful. Thank you.

Thank you. Your next question is coming from Susan Mlakar from Goldman Sachs. Susan, your line is live. Please go ahead.

Thank you. Good morning everyone. I just want to focus in a bit more on the cost side of the business. We have seen lumber and wood product prices generally inflating over the last several weeks. It feels like they're on a general upward trajectory. As you think about the next several quarters, can you talk about what you're seeing and how you're thinking about that element of the cost structure in fiscal '25?

Okay, that's helpful. And then maybe turning to the rental side of the business, you mentioned in your comments that you expect your inventories to hold flat for the next several years. But as you do think about the potential that rates stay relatively higher versus lower, can you just talk about the demand that you are seeing on that rental side and how you're thinking about managing that and meeting that need as well?

Okay, thank you for the color. Good luck with everything.

Thank you. Your next question is coming from Jade Rahmani from KBW. Jade, your line is live. Please go ahead.

Thank you very much. What level of rates would need to spur demand and get buyers off the sidelines as you've categorized? Would it be around a 100 basis point reduction, and would you need to see that through the 10-year Treasury?

In terms of the APR you're currently offering, is it in the mid-5% range or low 5% range? I've seen at least one competitor in the fours, but most do seem to be in that five-ish percent range.

Thank you.

Thank you. This does conclude today's Q&A session. I would now like to hand the floor back to Paul Romanowski for closing remarks.

Thank you, Tom. We appreciate everyone's time on the call today and look forward to speaking with you in January to share our first quarter results. Congratulations to the entire D.R. Horton family on a successful fiscal 2024. Due to your efforts, we just completed our 23rd consecutive year as the largest builder in the United States. We are honored to represent you on this call and we look forward to everything we will accomplish together in fiscal 2025. Thank you.

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.