(dollars in thousands, except per share data) Forward-Looking Statements Some of the statements in this Quarterly Report on Form 10-Q, as well as statements made by us in periodic press releases or other public communications, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other comparable terminology. All statements other than of historical facts are forward-looking statements. Forward-looking statements contained in this document may include those regarding market trends, our financial position and financial results, business strategy, the outcome of pending litigation, investigations or similar contingencies, projected plans and objectives of management for future operations. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or performance to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to the following: the impact of COVID-19 on us and the economy generally; general economic and business conditions (on both a national and regional level); interest rate changes; access to suitable financing by us and our customers; increased regulation in the mortgage banking industry; the ability of our mortgage banking subsidiary to sell loans it originates into the secondary market; competition; the availability and cost of land and other raw materials used by us in our homebuilding operations; shortages of labor; weather related slow-downs; building moratoriums; governmental regulation; fluctuation and volatility of stock and other financial markets; mortgage financing availability; and other factors over which we have little or no control. We undertake no obligation to update such forward-looking statements except as required by law. For additional information regarding risk factors, see Part II, Item 1A of this Quarterly Report on Form 10-Q, Part I, Item 1A of NVR's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 and other public filings. Unless the context otherwise requires, references to "NVR," "we," "us," or "our" include NVR and its consolidated subsidiaries. Results of Operations for the Three and Nine Months EndedSeptember 30, 2020 and 2019 Overview Impact of COVID-19 The pandemic, caused by the novel strain of coronavirus ("COVID-19"), has had a significant impact on all facets of our business. Our primary focus as we face this challenge is to do everything we can to ensure the safety and well-being of our employees, customers and trade partners. Residential construction has been deemed an essential business in each of our markets since the beginning of the pandemic, exceptPennsylvania andNew York , where we faced closures into May. In each of our markets, we continue to operate in accordance with the guidelines issued by theCenters for Disease Control and Prevention as well as state and local guidelines, which has resulted in significant changes to the way we conduct business. We experienced elevated sales cancellations and decreased new orders during March and April; however, the demand for new homes began to strengthen in May and continued to do so through September. Despite high unemployment rates attributable to the COVID-19 pandemic, demand in the third quarter increased primarily as a result of historically low mortgage interest rates coupled with low resale inventory levels. From March through May, there were significant disruptions in the mortgage market as investors tightened their credit standards or exited the market, which resulted in significantly lower values for mortgage servicing rights and fewer customers able to qualify for a mortgage. From June through September, the mortgage market stabilized as mortgage demand increased. 20 -------------------------------------------------------------------------------- Table of Contents There is uncertainty regarding the extent and timing of disruption to our business that may result from COVID-19 and related governmental actions. There is also uncertainty as to the effects of the pandemic and related economic relief efforts on theU.S. economy, unemployment, consumer confidence, demand for our homes and the mortgage market, including lending standards and secondary mortgage markets. We are unable to predict the extent to which this will impact our operational and financial performance, including the impact of future developments such as the duration and spread of COVID-19, corresponding governmental actions, and the impact of such on our employees, customers and trade partners. Business Our primary business is the construction and sale of single-family detached homes, townhomes and condominiums, all of which are primarily constructed on a pre-sold basis. To fully serve customers of our homebuilding operations, we also operate a mortgage banking and title services business. We primarily conduct our operations in mature markets. Additionally, we generally grow our business through market share gains in our existing markets and by expanding into markets contiguous to our current active markets. Our four homebuilding reportable segments consist of the following regions: Mid Atlantic: Maryland, Virginia, West Virginia, Delaware and Washington, D.C. North East: New Jersey and Eastern Pennsylvania Mid East: New York, Ohio, Western Pennsylvania, Indiana and Illinois South East: North Carolina, South Carolina, Florida and Tennessee Our lot acquisition strategy is predicated upon avoiding the financial requirements and risks associated with direct land ownership and development. We generally do not engage in land development (see discussion below of our land development activities). Instead, we typically acquire finished lots at market prices from various third party land developers pursuant to fixed price finished lot purchase agreements ("Lot Purchase Agreements"). These Lot Purchase Agreements require deposits, typically ranging up to 10% of the aggregate purchase price of the finished lots, in the form of cash or letters of credit that may be forfeited if we fail to perform under the Lot Purchase Agreement. This strategy has allowed us to maximize inventory turnover, which we believe enables us to minimize market risk and to operate with less capital, thereby enhancing rates of return on equity and total capital. In addition to constructing homes primarily on a pre-sold basis and utilizing what we believe is a conservative lot acquisition strategy, we focus on obtaining and maintaining a leading market position in each market we serve. This strategy allows us to gain valuable efficiencies and competitive advantages in our markets, which we believe contributes to minimizing the adverse effects of regional economic cycles and provides growth opportunities within these markets. Our continued success is contingent upon our ability to control an adequate supply of finished lots on which to build. In certain specific strategic circumstances, we deviate from our historical lot acquisition strategy and engage in joint venture arrangements with land developers or directly acquire raw ground already zoned for its intended use for development. Once we acquire control of raw ground, we determine whether to sell the raw parcel to a developer and enter into a Lot Purchase Agreement with the developer to purchase the finished lots or to hire a developer to develop the land on our behalf. While joint venture arrangements and direct land development activity are not our preferred method of acquiring finished building lots, we may enter into additional transactions in the future on a limited basis where there exists a compelling strategic or prudent financial reason to do so. We expect, however, to continue to acquire substantially all our finished lot inventory using Lot Purchase Agreements with forfeitable deposits. As ofSeptember 30, 2020 , we controlled approximately 103,200 lots as described below. Lot Purchase Agreements We controlled approximately 100,000 lots under Lot Purchase Agreements with third parties through deposits in cash and letters of credit totaling approximately$434,200 and$6,800 , respectively. Included in the number of controlled lots are approximately 8,600 lots for which we have recorded a contract land deposit impairment reserve of approximately$58,800 as ofSeptember 30, 2020 . 21 -------------------------------------------------------------------------------- Table of Contents Joint Venture Limited Liability Corporations ("JVs") We had an aggregate investment totaling approximately$28,700 in four JVs, expected to produce approximately 6,050 lots. Of the lots to be produced by the JVs, approximately 2,700 lots were controlled by us and approximately 3,350 were either under contract with unrelated parties or currently not under contract. We had additional funding commitments totaling approximately$3,800 to one of the JVs atSeptember 30, 2020 .Land Under Development We directly owned three separate raw land parcels, zoned for their intended use, with an aggregate cost basis, including development costs, of approximately$63,600 that we intend to develop into approximately 500 finished lots. We had additional funding commitments of approximately$5,200 under a joint development agreement related to one parcel, a portion of which we expect will be offset by development credits of approximately$2,900 . See Notes 2, 3 and 4 to the condensed consolidated financial statements included herein for additional information regarding Lot Purchase Agreements, JVs and land under development, respectively. Raw Land Purchase Agreements In addition, we have certain properties under contract with land owners that are expected to yield approximately 6,300 lots, which are not included in the number of total lots controlled. Some of these properties may require rezoning or other approvals to achieve the expected yield. These properties are controlled with deposits in cash and letters of credit totaling approximately$1,700 and$100 , respectively, as ofSeptember 30, 2020 , of which approximately$1,100 is refundable if certain contractual conditions are not met. We generally expect to assign the raw land contracts to a land developer and simultaneously enter into a Lot Purchase Agreement with the assignee if the project is determined to be feasible. Key Financial Results Our consolidated revenues for the third quarter of 2020 totaled$1,990,012 , a 4% increase from the third quarter of 2019. Net income for the third quarter endedSeptember 30, 2020 was$256,466 , or$65.11 per diluted share, increases of 15% and 16% when compared to net income and diluted earnings per share in the third quarter of 2019, respectively. Our homebuilding gross profit margin percentage increased to 20.0% in the third quarter of 2020 from 19.0% in the third quarter of 2019. New orders, net of cancellations ("New Orders") increased by 40% in the third quarter of 2020 compared to the third quarter of 2019. The average sales price for New Orders in the third quarter of 2020 increased by 4% to$384.2 compared to the third quarter of 2019. Income before tax from our mortgage banking segment totaled$51,812 in the third quarter of 2020, an increase of 142% when compared to$21,400 in the third quarter of 2019 due primarily to an increase in secondary marketing gains on sales of loans. 22 -------------------------------------------------------------------------------- Table of Contents Homebuilding Operations The following table summarizes the results of operations and other data for our consolidated homebuilding operations: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Financial Data: Revenues$ 1,920,751 $ 1,873,331 $ 5,065,216 $ 5,273,985 Cost of sales$ 1,536,044 $ 1,518,276 $ 4,115,280 $ 4,282,470 Gross profit margin percentage 20.0 % 19.0 % 18.8 % 18.8 % Selling, general and administrative expenses$ 105,741 $ 109,969 $ 318,610 $ 337,913 Operating Data: New orders (units) 6,681 4,766 17,597 15,144 Average new order price $ 384.2$ 369.2 $ 374.5$ 364.8 Settlements (units) 5,180 5,124 13,706 14,337 Average settlement price $ 370.8$ 365.5 $ 369.5$ 367.8 Backlog (units) 12,124 9,172 Average backlog price $ 384.0$ 371.0 New order cancellation rate 11.8 % 15.7 % 15.8 % 14.3 % Consolidated Homebuilding - Three Months EndedSeptember 30, 2020 and 2019 Homebuilding revenues increased 3% in the third quarter of 2020 compared to the same period in 2019, due primarily to 1% increases in both the number of units settled and the average settlement price. The increases in units settled and the average settlement price were favorably impacted by an 11% higher backlog unit balance and 2% higher average price of homes, respectively, in backlog entering the third quarter of 2020 compared to the same period in 2019. Gross profit margin percentage in the third quarter of 2020 increased to 20.0%, from 19.0% in the third quarter of 2019. Gross profit margin in the third quarter of 2020 was favorably impacted by a relative shift in settlements to higher margin communities. The number of New Orders and average sales price of New Orders increased 40% and 4%, respectively, in the third quarter of 2020 compared to the third quarter of 2019. New Orders and the average sales price of New Orders were higher in each of our market segments quarter over quarter due to favorable market conditions driven primarily by historically low mortgage interest rates coupled with low resale inventory levels. Selling, general and administrative ("SG&A") expense in the third quarter of 2020 decreased by approximately 4%, and as a percentage of revenue decreased to 5.5% in the third quarter of 2020 from 5.9% in the third quarter of 2019. The decrease in SG&A expense was attributable to a decrease in stock based compensation expense of approximately$6,600 due to the stock options issued in 2014 under the 2014 Equity Incentive Plan becoming fully vested in 2019 and higher stock option forfeitures quarter over quarter. Consolidated Homebuilding - Nine Months EndedSeptember 30, 2020 and 2019 Homebuilding revenues decreased 4% for the nine months endedSeptember 30, 2020 compared to the same period in 2019, due primarily to a 4% decrease in the number of units settled. Settlements were negatively impacted by the COVID-19 pandemic primarily during the first and second quarters of 2020. Gross profit margin percentage in the first nine months of 2020 were flat compared to the same period of 2019. Gross profit margin in 2020 was negatively impacted by contract land deposit impairment charges of approximately$32,500 , or 65 basis points of revenue. The impact of the impairment charge was offset by improved gross profit margin attributable to a relative shift in settlements to higher margin communities. 23 -------------------------------------------------------------------------------- Table of Contents The number of New Orders and average sales price of New Orders increased 16% and 3%, respectively, in the first nine months of 2020 compared to the same period in 2019. New Orders were higher as a result of the increase in New Orders in the third quarter of 2020, as discussed above. SG&A expense in the first nine months of 2020 decreased by approximately 6%, and as a percentage of revenue was essentially flat year over year. SG&A expense was favorably impacted by a decrease in stock based compensation expense of approximately$22,800 due to the stock options issued in 2014 under the 2014 Equity Incentive Plan becoming fully vested in 2019 and higher stock option forfeitures year over year. Our backlog represents homes sold but not yet settled with our customers. Backlog units and dollars were 12,124 units and$4,655,510 , respectively, as ofSeptember 30, 2020 , compared to 9,172 units and$3,402,933 , respectively, as ofSeptember 30, 2019 . The 32% increase in backlog units is primarily attributable to the increase in New Orders in the third quarter of 2020 as discussed above, coupled with a lower backlog turnover rate year over year. In addition to the impact of the COVID-19 pandemic, our backlog may be impacted by customer cancellations for various reasons that are beyond our control, such as failure to obtain mortgage financing, inability to sell an existing home, job loss, or a variety of other reasons. In any period, a portion of the cancellations that we experience are related to new sales that occurred during the same period, and a portion are related to sales that occurred in prior periods and therefore appeared in the opening backlog for the current period. Expressed as the total of all cancellations during the period as a percentage of gross sales during the period, our cancellation rate was approximately 16% and 14% in the first nine months of 2020 and 2019, respectively. During the most recent four quarters, approximately 7% of a reporting quarter's opening backlog cancelled during the fiscal quarter. We can provide no assurance that our historical cancellation rates are indicative of the actual cancellation rate that may occur during the remainder of 2020 or future years. Other than those units that are cancelled, and subject to potential construction delays resulting from COVID-19 related restrictions, we expect to settle substantially all of ourSeptember 30, 2020 backlog within the next twelve months. The backlog turnover rate is impacted by various factors, including, but not limited to, changes in New Order activity, internal production capacity, external subcontractor capacity and other external factors over which we do not exercise control, such as the impact of governmental orders to cease or limit construction activities as a result of COVID-19. Reportable Segments Homebuilding segment profit includes all revenues and income generated from the sale of homes, less the cost of homes sold, SG&A expenses, and a corporate capital allocation charge determined by corporate management. The corporate capital allocation charge eliminates in consolidation and is based on the segment's average net assets employed. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker to determine whether the operating segment is providing the desired rate of return after covering our cost of capital. We record impairment charges on contract land deposits when we determine that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are generally charged to the operating segment upon the termination of a Lot Purchase Agreement with the developer, or the restructuring of a Lot Purchase Agreement resulting in the forfeiture of the deposit. We evaluate our entire net contract land deposit portfolio for impairment each quarter. For presentation purposes below, the contract land deposit reserve atSeptember 30, 2020 andDecember 31, 2019 has been allocated to the respective year's reportable segments to show contract land deposits on a net basis. The net contract land deposit balances below also include approximately$6,800 and$5,500 atSeptember 30, 2020 andDecember 31, 2019 , respectively, of letters of credit issued as deposits in lieu of cash. The following tables summarize certain homebuilding operating activity by reportable segment for the three and nine months endedSeptember 30, 2020 and 2019 or as ofSeptember 30, 2020 andDecember 31, 2019 , as indicated. 24 -------------------------------------------------------------------------------- Table of Contents Selected Segment Financial Data: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenues: Mid Atlantic$ 949,472 $ 1,012,056 $ 2,563,375 $ 2,875,411 North East 157,973 120,478 362,328 364,909 Mid East 404,992 406,145 1,025,642 1,104,603 South East 408,314 334,652 1,113,871 929,062 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Gross profit margin: Mid Atlantic$ 167,314 $ 189,535 $ 471,839 $ 540,060 North East 27,265 25,364 69,512 71,452 Mid East 73,630 79,227 187,181 208,870 South East 83,520 66,836 231,594 182,940 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Gross profit margin percentage: Mid Atlantic 17.6 % 18.7 % 18.4 % 18.8 % North East 17.3 % 21.1 % 19.2 % 19.6 % Mid East 18.2 % 19.5 % 18.3 % 18.9 % South East 20.5 % 20.0 % 20.8 % 19.7 % Three Months Ended
2020 2019 2020 2019 Segment profit: Mid Atlantic$ 104,700 $ 124,900 $ 284,440 $ 348,067 North East 14,272 13,164 31,081 36,187 Mid East 45,109 50,210 103,575 125,976 South East 52,554 39,721 142,463 105,582 Operating Activity: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Average Average Average Average Units Price Units Price Units Price Units
Price
New orders, net of cancellations: Mid Atlantic 2,592$ 455.5 2,086$ 427.7 7,034$ 447.4 6,852$ 419.1 North East 542$ 441.1 323$ 379.0 1,269$ 405.4 1,000$ 378.9 Mid East 1,644$ 335.5 1,141$ 328.6 4,405$ 326.0 3,631$ 322.0 South East 1,903$ 313.0 1,216$ 304.2 4,889$ 305.3 3,661$ 301.6 Total 6,681$ 384.2 4,766$ 369.2 17,597$ 374.5 15,144$ 364.8 25
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Table of Contents Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Average Average Average Average Units Price Units Price Units Price Units Price Settlements: Mid Atlantic 2,172$ 437.1 2,421$ 418.0 5,898$ 434.6 6,890$ 417.3 North East 396$ 398.9 316$ 381.3 939$ 385.9 933$ 391.0 Mid East 1,250$ 324.0 1,255$ 323.5 3,180$ 322.5 3,382$ 326.5 South East 1,362$ 299.8 1,132$ 295.6 3,689$ 301.9 3,132$ 296.6 Total 5,180$ 370.8 5,124$ 365.5 13,706$ 369.5 14,337$ 367.8 As of September 30, 2020 2019 Average Average Units Price Units Price Backlog: Mid Atlantic 4,748$ 457.7 4,110$ 426.4 North East 917$ 427.8 630$ 383.3 Mid East 3,038$ 333.2 2,055$ 327.0 South East 3,421$ 315.1 2,377$ 310.0 Total 12,124$ 384.0 9,172$ 371.0 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 New order cancellation rate: Mid Atlantic 11.3 % 16.2 % 16.1 % 14.7 % North East 8.1 % 13.9 % 14.5 % 12.3 % Mid East 11.5 % 15.9 % 15.3 % 13.9 % South East 13.7 % 15.0 % 16.3 % 14.2 % Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Average active communities: Mid Atlantic 170 201 183 208 North East 41 34 41 32 Mid East 135 136 138 131 South East 119 102 113 93 Total 465 473 475 464 26
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Table of Contents Homebuilding Inventory: September 30, 2020 December 31, 2019 Sold inventory: Mid Atlantic $ 752,793 $ 575,216 North East 133,008 77,965 Mid East 296,421 190,700 South East 323,304 230,640 Total (1) $ 1,505,526$ 1,074,521 September 30, 2020 December 31, 2019
Unsold lots and housing units inventory: Mid Atlantic $ 79,913 $ 104,459 North East 10,173 28,331 Mid East 11,398 15,333 South East 20,613 35,420 Total (1) $ 122,097 $ 183,543 (1) The reconciling items between segment inventory and consolidated inventory include certain consolidation adjustments necessary to convert the reportable segments' results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes. These consolidation adjustments are not allocated to our operating segments. Lots Controlled and Land Deposits: September 30, 2020 December 31, 2019 Total lots controlled: Mid Atlantic 42,300 42,400 North East 9,900 9,900 Mid East 21,600 24,200 South East 29,400 28,400 Total 103,200 104,900 September 30, 2020 December 31, 2019
Contract land deposits, net:
Mid Atlantic $ 208,869 $ 205,433 North East 32,911 50,348 Mid East 49,861 57,053 South East 92,306 106,523 Total $ 383,947 $ 419,357 27
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Table of Contents Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Contract land deposit impairments (recoveries), net: Mid Atlantic $ 114$ (247) $ 114 $ 42 North East 56 - 60 1,050 Mid East (1) 41 293 50 South East 25 21 927 21 Total $ 194$ (185) $ 1,394 $ 1,163 Mid Atlantic Three Months EndedSeptember 30, 2020 and 2019 The Mid Atlantic segment had an approximate$20,200 , or 16%, decrease in segment profit in the third quarter of 2020 compared to the third quarter of 2019. The decrease in segment profit was driven by a decrease in segment revenues of approximately$62,600 , or 6%, quarter over quarter. Segment revenues decreased due to a 10% decrease in the number of units settled, offset partially by a 5% increase in the average settlement price quarter over quarter. The decrease in the number of units settled was impacted by a 3% lower backlog unit balance entering the third quarter of 2020 compared to the backlog unit balance entering the third quarter of 2019, coupled with a lower backlog turnover rate quarter over quarter. The increase in the average settlement price was primarily attributable to a 7% higher average sales price of units in backlog entering the third quarter of 2020 compared to backlog entering the third quarter of 2019. The Mid Atlantic segment's gross profit margin percentage decreased to 17.6% in the third quarter of 2020 from 18.7% in the third quarter of 2019 due to increases in lumber and certain other commodity prices quarter over quarter. Segment New Orders and the average sales price of New Orders increased 24% and 6%, respectively, in the third quarter of 2020 compared to the third quarter of 2019. New Orders increased despite a 16% decrease in the average number of active communities quarter over quarter, due to higher absorption rates attributable to favorable market conditions driven primarily by historically low mortgage interest rates and low resale inventory levels. The average sales price of New Orders was favorably impacted by the previously mentioned favorable market conditions which provided us some pricing power, as well as to a relative market shift in New Orders to higher priced communities within certain markets in the segment. Nine Months EndedSeptember 30, 2020 and 2019 The Mid Atlantic segment had an approximate$63,600 , or 18%, decrease in segment profit in the first nine months of 2020 compared to the first nine months of 2019. The decrease in segment profit was driven by a decrease in segment revenues of approximately$312,000 , or 11%, year over year. Segment revenues decreased due to a 14% decrease in the number of units settled, offset partially by a 4% increase in the average settlement price year over year. The decrease in the number of units settled was impacted by a 13% lower backlog unit balance entering 2020 compared to the backlog unit balance entering 2019, coupled with a lower backlog turnover rate year over year. The increase in the average settlement price was primarily attributable to a 4% higher average sales price of units in backlog entering 2020 compared to backlog entering 2019. The MidAtlantic segment's gross profit margin percentage remained relatively flat in the first nine months of 2020 compared to the first nine months of 2019. Segment New Orders and the average sales price of New Orders increased 3% and 7%, respectively, in the first nine months of 2020 compared to the first nine months of 2019. New Orders increased despite a 12% decrease in the average number of active communities year over year, primarily due to the increase in New Orders in the third quarter of 2020 as discussed above. 28 -------------------------------------------------------------------------------- Table of Contents North East Three Months EndedSeptember 30, 2020 and 2019 TheNorth East segment had an approximate$1,100 , or 8%, increase in segment profit in the third quarter of 2020 compared to the third quarter of 2019 due primarily to an increase in segment revenues of approximately$37,500 , or 31%, quarter over quarter. The increase in segment revenues was attributable to a 25% increase in the number of units settled and a 5% increase in the average settlement price quarter over quarter. The increases in units settled and the average settlement price were primarily attributable to a 24% higher backlog unit balance and a 5% higher average price of homes in backlog entering the third quarter of 2020 compared to the backlog unit balance and average price of homes in backlog entering the third quarter of 2019. The segment's gross profit margin percentage decreased to 17.3% in the third quarter of 2020 from 21.1% in the third quarter of 2019 due to increases in lumber and certain other commodity prices quarter over quarter. Segment New Orders and the average sales price of New Orders increased 68% and 16%, respectively, in the third quarter of 2020 compared to the third quarter of 2019. New Orders increased due to higher absorption rates attributable to favorable market conditions driven primarily by historically low mortgage interest rates and low resale inventory levels and by a 20% increase in the average number of active communities quarter over quarter. The average sales price of New Orders was favorably impacted by the previously mentioned favorable market conditions which provided us some pricing power, as well as to a relative market shift in New Orders to higher priced communities within certain markets in the segment. Nine Months EndedSeptember 30, 2020 and 2019 TheNorth East segment had an approximate$5,100 , or 14%, decrease in segment profit in the first nine months of 2020 compared to the first nine months of 2019. Segment revenues decreased approximately$2,600 , or 1%, year over year. The decrease in segment revenues was attributable to a 1% decrease in the average settlement price year over year due to a relative shift in settlements to lower priced markets within the segment. The segment's gross profit margin percentage decreased to 19.2% in the first nine months of 2020 from 19.6% in the first nine months of 2019 due to increases in lumber and certain other commodity prices year over year. Segment New Orders and the average sales price of New Orders increased 27% and 7%, respectively, in the first nine months of 2020 compared to the first nine months of 2019. New Orders were higher primarily as a result of the increase in New Orders in the third quarter of 2020 as discussed above, coupled with a 25% increase in the average number of active communities year over year. Mid East Three Months EndedSeptember 30, 2020 and 2019 The Mid East segment had an approximate$5,100 , or 10%, decrease in segment profit in the third quarter of 2020 compared to the third quarter of 2019. Segment revenues were relatively flat quarter over quarter, as both the number of units settled and the average settlement price were flat quarter over quarter. The segment's gross profit margin percentage decreased to 18.2% in the third quarter of 2020 from 19.5% in the third quarter of 2019 due to increases in lumber and certain other commodity prices quarter over quarter. Segment New Orders and the average sales price of New Orders increased 44% and 2%, respectively, in the third quarter of 2020 compared to the third quarter of 2019. New Orders increased due to higher absorption rates attributable to favorable market conditions driven primarily by historically low mortgage interest rates and low resale inventory levels. 29 -------------------------------------------------------------------------------- Table of Contents Nine Months EndedSeptember 30, 2020 and 2019 The Mid East segment had an approximate$22,400 , or 18%, decrease in segment profit in the first nine months of 2020 compared to the first nine months of 2019 due primarily to a decrease in segment revenues of approximately$79,000 , or 7%, year over year. Segment revenues decreased primarily due to a 6% decrease in the number of units settled and a 1% decrease in the average settlement price year over year. The decrease in units settled was largely attributable to a decrease in settlements in ourWestern Pennsylvania andNew York markets due to the state and local governments in those markets issuing various orders that prohibited residential construction from the end of March throughApril 2020 as a result of the COVID-19 pandemic. The segment's gross profit margin percentage decreased to 18.3% in the first nine months of 2020 from 18.9% in the first nine months of 2019 due to increases in lumber and certain other commodity prices year over year. Segment New Orders and the average sales price of New Orders increased 21% and 1%, respectively, in the first nine months of 2020 compared to the first nine months of 2019. New Orders were higher primarily as a result of the increase in New Orders in the third quarter of 2020 and by a 6% increase in the average number of active communities year over year. South East Three Months EndedSeptember 30, 2020 and 2019 The South East segment had an approximate$12,800 , or 32%, increase in segment profit in the third quarter of 2020 compared to the third quarter of 2019. The increase in segment profit was primarily driven by an increase in segment revenues of approximately$73,700 , or 22%, coupled with improved gross profit margins quarter over quarter. The increase in revenues is attributable to a 20% increase in the number of units settled and a 1% increase in the average settlement price quarter over quarter. The number of units settled was favorably impacted by a 26% higher backlog unit balance entering the third quarter of 2020 compared to the same period in 2019. The segment's gross profit margin percentage increased to 20.5% in the third quarter of 2020 from 20.0% in the third quarter of 2019 due to a relative shift in settlements to higher margin communities. Segment New Orders and the average sales price of New Orders increased 57% and 3%, respectively, in the third quarter of 2020 compared to the third quarter of 2019. New Orders increased due to higher absorption rates attributable to favorable market conditions driven primarily by historically low mortgage interest rates and low resale inventory levels and by a 17% increase in the average number of active communities quarter over quarter. Nine Months EndedSeptember 30, 2020 and 2019 The South East segment had an approximate$36,900 , or 35%, increase in segment profit in the first nine months of 2020 compared to the first nine months of 2019. The increase in segment profit was primarily driven by an increase in segment revenues of approximately$184,800 , or 20%, coupled with improved gross profit margins year over year. The increase in revenues is attributable to an 18% increase in the number of units settled and a 2% increase in the average settlement price year over year. The number of units settled and the average settlement price were favorably impacted by a 20% higher backlog unit balance and 3% higher average sales price of units in backlog entering 2020 compared to the same period in 2019. The segment's gross profit margin percentage increased to 20.8% in the first nine months of 2020 from 19.7% in the first nine months of 2019 due to a relative shift in settlements to higher margin communities. Segment New Orders and the average sales price of New Orders increased 34% and 1%, respectively, in the first nine months of 2020 compared to the first nine months of 2019. New Orders were higher as a result of the increase in New Orders in the third quarter of 2020 as discussed above and by a 21% increase in the average number of active communities year over year. Homebuilding Segment Reconciliations to Consolidated Homebuilding Operations In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between homebuilding segment profit and homebuilding consolidated income before tax include unallocated corporate overhead (which includes all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense. Our overhead functions, such as accounting, treasury and human resources, are centrally performed and the costs are not allocated to our 30 -------------------------------------------------------------------------------- Table of Contents operating segments. Consolidation adjustments consist of such items to convert the reportable segments' results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to our operating segments. Our external corporate interest expense primarily consists of interest charges on our Senior Notes, and is not charged to the operating segments because the charges are included in the corporate capital allocation discussed above. Three Months Ended
2020 2019 2020 2019 Homebuilding consolidated gross profit: Mid Atlantic$ 167,314 $ 189,535 $ 471,839 $ 540,060 North East 27,265 25,364 69,512 71,452 Mid East 73,630 79,227 187,181 208,870 South East 83,520 66,836 231,594 182,940 Consolidation adjustments and other (1) 32,978 (5,907) (10,190) (11,807) Homebuilding consolidated gross profit$ 384,707 $
355,055
(1)The increase in our consolidation adjustments and other reconciling item for the three month period endedSeptember 30, 2020 relates primarily to the significant increase in lumber prices during the third quarter of 2020. Our reportable segments' results include intercompany profits of our production facilities, which were negatively impacted by the increase in lumber costs. This increase in lumber costs related to homes not yet settled is eliminated through the consolidation adjustment. As these homes currently in inventory are settled in subsequent quarters, our consolidated homebuilding margins will be negatively impacted by the higher lumber costs. For the nine month period endedSeptember 30, 2020 , the increase in the consolidation adjustment due to higher lumber prices was offset by the lot deposit reserve recorded in the first quarter of 2020.
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