We continue to experience strong demand for our products as new orders increased
12% over the prior year for the nine months ended September 30, 2021. While new
orders were 17% lower than the prior year for the three months ended September
30, 2021, the decrease was driven primarily by a 14% reduction in community
count in combination with Company actions to strategically manage the pace of
sales to better align with current production levels. The favorable demand for
new housing has been driven by mortgage interest rates near historical lows, a
limited supply of new and existing home inventory, an increased appeal for
homeownership and single-family living, and a desire among some buyers to exit
more densely populated urban centers or to relocate from higher cost
geographical regions. As a result, our order backlog increased 33% in units and
56% in dollars as of September 30, 2021 over the prior year.
Home closings increased 9% and 14% in the three and nine months ended September
30, 2021, respectively, compared with the prior year periods. The higher closing
volume is despite significant disruption in the homebuilding supply chain,
including the availability of certain materials and construction labor combined
with delays in municipal approvals and inspections, which has elongated the
production cycle of the homes we are constructing. While we are working with our
supply partners, have increased our speculative housing starts, and have hired
additional construction and customer service employees, our production cycle
times have extended in the majority of our markets due to the challenges
referenced above. Due to these supply chain challenges, we are moderating lot
releases and the pace of new orders in the majority of our communities in order
to balance sales volume and production capacity to reduce backlog durations. We
believe these conditions will continue to impact our industry for at least the
next few quarters.
We are also facing cost pressures related to labor and materials, due in large
part to a shortage of workers and supply chain challenges resulting from ongoing
effects of the COVID-19 pandemic and other macroeconomic factors. Specifically,
the cost of lumber more than quadrupled from mid-2020 to mid-2021. While the
cost of lumber has declined significantly since peaking in May 2021, it remains
elevated compared to historical norms, and the availability of certain wood
products, including roof and floor trusses and oriented strand boards, remains
challenged. We also continue to experience significant challenges with the cost
and availability of windows, siding, and appliances, among other supply
categories. To date, we have been, and believe we will continue to be, able to
increase pricing to offset the majority of such cost increases due to ongoing
high consumer demand.
Despite the development of vaccines and more effective treatments for the
physical impacts of COVID-19, there are no reliable estimates of how long the
COVID-19 pandemic, or its related impacts on overall economic conditions or the
global supply chain, will last. As a result, the unpredictability of the current
economic and public health conditions will continue to evolve. However, all of
our operations continue to function at effectively full capacity subject to
health and safety protocols, and we remain optimistic about future housing
demand and our ability to continue expanding our business. Due to the higher
demand and long municipal entitlement timelines, the number of our active
communities continues to decrease as we close communities at a pace faster than
we are opening new ones. While we have increased our investments in land
acquisition and development, we expect that the number of our active communities
will not begin to increase meaningfully until 2022.
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