Participants

Mackenzie Aron; Vice President of Investor Relations; Taylor Morrison Home Corp

Sheryl Palmer; Chairman of the Board, President, Chief Executive Officer; Taylor Morrison Home Corp

Erik Heuser; Chief Corporate Operations Officer; Taylor Morrison Home Corp

Curt Vanhyfte; Chief Financial Officer; Taylor Morrison Home Corp

Elizabeth Langan; Analyst; Barclays

Michael Rehaut; Analyst; JPMorgan Chase & Co

Mike Dahl; Analyst; RBC Capital Markets

Trevor Allinson; Analyst; Wolfe Research

Alan Ratner; Analyst; Zelman & Associates

Carl Reichardt; Analyst; BTIG

Buck Horne; Analyst; Raymond James

Alex Barron; Analyst; Housing Research Center

Presentation

Operator

Ladies and gentlemen, the Q4 2024, Taylor Morrison Home Corp earnings conference call, will begin shortly with your host, Mackenzie Aron. We appreciate your patience, prepare your session today. (Operator Instructions) We will begin shortly.
Good morning, and welcome to Taylor Morrison's fourth quarter 2024 earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded. I'd now like to introduce your host, Mackenzie Aron, Vice President of Investor Relations.

Mackenzie Aron

Thank you, and good morning, everyone. We appreciate you joining us today. Before we begin, let me remind you that this call, including the question-and-answer session, will include forward-looking statements. These statements are subject to the safe harbor statement for forward-looking information that you can review in our earnings release on the Investor Relations portion of our website at taylormorrison.com. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the SEC and we do not undertake any obligation to update our forward-looking statements. In addition, we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in the release.
Now I will turn the call over to our Chairman and Chief Executive Officer, Sheryl Palmer.

Sheryl Palmer

Thank you, Mackenzie, and good morning, everyone. Joining me today is Curt VanHyfte, our Chief Financial Officer; and Erik Heuser, our Chief Corporate Operations Officer. I will share an update on the market and our strategic priorities while Eric will discuss our land portfolio and thoughts on the retail market, and Kurt will detail our financial performance and initial guidance for 2025.
I am proud to share the strong results of our fourth quarter, which I believe once again distinguished our team's execution and the merits of our diversified consumer and geographic strategy. Among the highlights, we delivered 3,571 homes at an average price of $608,000, producing nearly $2.2 billion of revenue with an adjusted home closings gross margin of 24.9%.
Each of our operational metrics met or exceeded our prior guidance, combined with cost leverage, improved financial services income and a favorable tax rate. This generated nearly 30% year-over-year growth in our adjusted earnings per diluted share and a 14% year-over-year increase in our book value per share to $56.
From a sales perspective, as I shared on our last earnings call in October, we were seeing healthy demand trends in line with seasonal patterns. While interest rates increased sharply through the quarter, activity held up with impressive consistency through year-end. As a result, our fourth quarter net orders increased 11% year-over-year with an absorption pace of 2.6 per community up from 2.4 a year ago.
This brought our annualized absorption pace to 3 for the year within our targeted range. I am pleased that this sales success was achieved with only a modest increase in incentives needed to address the impact of higher interest rates. This contributed to our better-than-expected fourth quarter adjusted gross margin which was stable sequentially and up year-over-year in contrast to significant compression seen across our industry.
As I have highlighted on recent calls, our margins have remained in a tight range over the last two years despite the volatile rate environment. I attribute our positive results to the quality locations of our communities, which are concentrated in attractive core submarkets with minimal exposure to further out tertiary locations.
As Erik will discuss, tertiary markets are facing the most pricing pressure from rising inventory as well as greater sensitivity to affordability constraints among first-time buyers attracted to such markets. Alternatively, our prime location strategy continues to benefit from attractive underlying fundamentals by serving well qualified homebuyers in our entry level, move-up and resort lifestyle segments. Across our portfolio, we further diversify by offering both to-be-built and spec homes aimed at meeting the needs and preferences of our customers.
In addition to aiding our sales opportunities, this balanced mix further insulates our margins from broader market pressures as to-be-built homes generate superior gross margins. As we have discussed in the past, a high percentage of our resort lifestyle buyers prefer to select their own home site, floor plan and elevation and generally spend 3 times more in lot and option premiums as compared to each of our other consumer groups.
They also require less incentives and entry-level heavy spectrum. This makes our fourth quarter margin performance, all the more notable when considering that 54% of the quarter's closings came from specs, including 21% that were sold and closed during the quarter, a higher-than-normal contribution that help drive the upside to our closing volume. As we look ahead, we expect this balanced approach and long-standing emphasis on quality locations to serve as well as we balance pace and price in each community to maximize our returns.
With the spring selling season officially kicking off this week following Sunday Super Bowl, early indicators are encouraging, appreciating that we have a difficult year-over-year comparison this quarter given the exceptionally strong sales recorded in the first quarter of 2024, we are pleased to see pre-qualifications growing by week and web traffic to taylormorrison.com almost up 40% from a year ago.
This strong lift in website visitors is a direct correlation to our involvement in ABC's reboot of Extreme Makeover Home Edition where we serve as the season's official homebuilder providing beautiful national homes to deserving families.
In the fourth quarter and continuing into 2025, we're seeing healthy momentum in online home reservations with a 53% conversion to sale and a declining rate of participation with real estate agents. Most notably, among customers using our online scheduling tool, we saw a sharp decline in the share of sales with a real estate agent to 67% last quarter from 80% a year ago.
This shift is likely due to a number of factors, including the recent NAR rulings, the pricing transparency delivered by our digital experience and our long-standing reputation as America's most trusted homebuilder 10 years running.
Alongside the year's early momentum, we are strategically managing our pricing and incentives including the rollout of a national base price increase in early January. As needed, we continue to prioritize customizable finance incentives to address each customers' unique circumstances. By working closely with our customers to personalize the most effective use of sales tools, we better manage our overall incentive cost while improving our customers' purchasing power.
This customer-by-customer strategy has allowed us to maintain a relatively low utilization of mortgage forward commitments tied to below market interest rates, with just 38% of our fourth quarter closings using these most costly incentive structures. Similar to the last many quarters, about half of the customers using these forward commitments, our first-time home buyers.
By Consumer Group, our fourth quarter orders consisted of 32% entry level, 48% move-up and 20% resort lifestyle. On a year-over-year basis, orders were strongest in our move-up segment with 27% growth, while our entry-level sales were up 5% and resort lifestyle declined 9% in part due to the hurricane impact in Florida, where this segment is heaviest as well as the timing of opening and closeout of Esplanade communities at year end.
In addition, Florida has been faced with some of the highest levels of rising inventory. But as Erik will elaborate on, we have found that most of the supply is not competitive to our communities and we are encouraged that Florida has started to show some positive signs year-to-date.
Overall, I would characterize buyer demand across all of our buyer profiles is healthy, albeit with varying needs of assistance to overcome affordability challenges with the most pressure at the entry level. Recognizing that there are more unknowns this year than typical given the new administration, we continue to be grounded in a positive view on the need for new construction that meets the needs and budgets of our targeted consumer groups.
While interest rates are unlikely to provide near-term relief to affordability constraints, we believe our suite of incentive tools and broad product offerings are appropriately aligned to achieve our targeted sales goals. We will meet the market as needed as we look to maintain an annualized sales pace in the low three range while also generating healthy gross margins in the low to mid-20% range.
As Curt will discuss in greater detail, our initial guidance for the year calls for 13,500 to 14,000 home closings at a gross margin between 23% to 24% and an SG&A ratio in the mid-9% range. Let me just end by saying that as an organization with significant tenure across our leadership and operating teams, we are well accustomed to facing uncertainty and market disruptions head on.
Our teams are nimble and have the flexibility to adjust our starts, product offerings and pricing structures as needed to minimize risk and maximize long-term profitability. Beyond the near-term potential headwinds, we remain confident in our outlook and look forward to providing more insights into our strengthened organizational capabilities at our upcoming Investor Day.
We hope all of you will join us on March 6 at 12 PM Eastern Time for the webcast presentation, which will highlight our multiyear growth trajectory and the many ways in which we have set up Taylor Morrison to succeed regardless of the market backdrop. For those of you able to attend in person, and we look forward to seeing you soon.
With that, let me now turn the call over to Erik.

Erik Heuser

Thanks, Sheryl, and good morning. Beginning with our land portfolio, our owned and controlled lot inventory was 86,153 homebuilding lots at quarter end. Based on trailing 12-month closings, this represented 6.6 years of supply of which only 2.8 years was owned. Of these total lots, 57% were controlled via options and off-balance sheet structures, up from 53% at the end of 2023 and 51% at the end of 2022. From an investment perspective, we allocated $293 million to homebuilding land acquisition and $297 million to development of existing assets for a total of $590 million during the quarter.
This brought our full year investment to approximately $2.4 billion, of which 57% was for lot acquisitions and 43% was for development of existing parcels. In 2025, we are projecting our total homebuilding land investment to be approximately $2.6 billion with a similar split between acquisition and development. As always, our ultimate investment will be dependent on market opportunities and our increasing use of off-balance sheet financing tools to support our growth aspirations.
Our use of such tools aims to generate enhanced returns on our invested capital, and we are well on our way to achieving our near-term goal of controlling at least 60% to 65% of our lot supply. Supported by this investment, we expect our community count to grow in the quarters ahead with an anticipated ending outlet comp between 340 to 345 for the first quarter and at least 355 by the end of the year.
As we have discussed previously, our average underwritten community size has grown materially in the last three years versus the prior three, while our targeted pesos have increased by approximately 25% over the same period, allowing us to greatly expand our business on a smaller outlet count all else equal. This shift to support higher sales paces and a more cost-effective structure, we believe will continue to provide greater returns over time.
Turning to our yard lead build-to-rent business. As expected, we sold two wholly owned assets during the quarter for a valuation that yielded a load of mid-5 cap rate. With 11 communities currently leasing across 6 markets, we are targeting five to seven additional asset sales in 2025, depending on market conditions.
As we look out, based on the pipeline of communities underway, we expect to ramp the level of annual dispositions until reaching a relatively steady state in the next three to four years. I look forward to providing a greater detail on this evolving business at next month's Investor Day.
Another topic we will spend time on at the Investor Day is the quality of our land locations, which we believe is a defining characteristic of our portfolio. The importance of this focus is reinforced as resale home supply has increased in most markets as has new construction inventory in many cases. While the aggregate level of new and resale homes on the market across the US.
remains well below historic averages, we are closely monitoring the impact of rising supply on our portfolio, given the 30% increase of resale months of supply across our MSA footprint over the last year. Despite these headline numbers, it is worth noting several meaningful market nuances.
For one, there are still markets with very low supply, such as the Bay Area with less than two months of inventory. And after analysing a number of our MSAs, including those in Florida and Texas, where attention is most focused, and reviewing the submarkets in which we operate compared to those in which we do not, we overwhelmingly found lower months of supply, reflecting our favorable strategic positioning.
As you will recall, this recent analysis follows our previous community review, which highlighted that approximately 17% of resale homes would be deemed competitive to our new home offerings after considering vintage size, price and product type sectors.
This competitive set would be even lower after further filtering for community type, which is especially relevant among shoppers in the age-targeted communities such as Esquinot where we sort lifestyle buyers intentionally seek out our distinctive amenities, concierge services and single-level products that they can personalize to meet their needs.
As we look to invest to support our strong growth aspirations, we will remain mindful of these dynamics as we contemplate investment decisions while continuing to emphasize a strong preference for core locations. With that, I will turn the call to Curt.

Curt Vanhyfte

Thanks, Erik, and good morning, everyone. For the fourth quarter, reported net income was $242 million or $2.30 per diluted share. After excluding legal, impairment and other charges, our adjusted net income was $278 million or $2.64 per diluted share. This was up 29% from an adjusted earnings per share of $2.05 a year ago, driven by higher revenue due to increased closing volume and improved home closings gross margin stronger financial services profitability and the lower tax rate. Our closings volume increased 12% year-over-year to 3,571 homes.
The average closing price of these deliveries was roughly flat from a year ago at $608,000. In total, this produced home closings revenue of $2.2 billion. From a production standpoint, we moderated our starts volume by 5% to 2,779 homes or 2.7% per community per month from 2,912 and homes or 3% per community per month a year ago.
Recognizing that our finished inventory of 857 homes at quarter end is slightly elevated compared to our historic run rate. We believe this inventory is well positioned to meet expected consumer demand during the spring selling season as evidenced by our team's success in selling and closing a record number of intra-quarter spec sales during the fourth quarter.
Going forward, we will be mindful of our inventory levels, and we'll continue to align new starts with sales as our strategy allows us to pivot based on market demand. In total, we ended the quarter with 7,698 homes under production, of which 3,437 were specs.
During the quarter, our cycle times continued to improve and were down nearly 30 days year-over-year as our teams achieved the savings we targeted going into 2024. Based on our homes currently under production, and the normalization in our production time lines, we currently expect to deliver between 13,500 to 14,000 homes this year. This includes approximately 2,900 homes in the first quarter. Based on the mix of these deliveries, we expect the average closing price to be in the range of $590,000 to $600,000 each quarter and for the full year.
Turning now to margins. our home closings gross margin in the fourth quarter was 24.8% on a reported basis and 24.9% adjusted for a $3 million impairment charge. This was stable from a reported margin of 24.8% in the third quarter, but up from 24.1% in the fourth quarter of 2023. We understand there is heightened focus on margin outlook this year given the many cross-currents at play.
On the one hand, our beginning backlog of over 4,700 homes carry strong margins. And the normalization and cycle times affords us the opportunity to start and close a greater number of high-margin to-be-built homes than in recent years.
And as you've heard today, we expect our diversified portfolio to withstand relative margin pressure given the strength of our customer base. However, on the other hand, we are assuming a step-up in incentives from the fourth quarter given the increase in interest rates thus far in the new year. We're also expecting a step-up in land cost inflation to approximately 7% this year from 4% in 2024.
Taking into account these factors and the anticipated mix of our deliveries, we expect our home closings gross margin to be between 23% and 24% this year, including the high 23% range in the first quarter. We are watching the evolving tariff situation closely and believe our range for the year appropriately accounts for the likely outcomes we could face based on our best understanding of product exposure.
Fortunately, given the steps we have taken to streamline our option SKUs, reshore products, and strengthen our supply chain resiliency in recent years, we believe we are prepared for any potential disruptions should they arise.
Importantly, we continue to expect our long-term gross margins to remain above our historic averages in the low to mid-20% range, given production and operational efficiencies cost leverage from our scale and lower capitalized interest burden.
Now to sales. Our net sales orders increased 11% year-over-year to 2,621 homes. This was driven by an 8% improvement in our monthly absorption pace to 2.6% per community and 4% increase in ending community count to 339 outlets.
Reflecting the sustained improvement in our absorption rates as we shifted into higher pacing communities and geographies, our sales paces throughout 2024 remained well above our pre-2020 average in the low to mid-2% range. Specific to the fourth quarter, our 2.6 pace was well ahead of our historic average of
Cancellations remained within normal ranges and below industry averages at 13.1% of gross orders as we continue to benefit from our strong consumer base, diligent prequalification requirements an average customer deposits of approximately $50,000 per home. SG&A as a percentage of home closings revenue in the fourth quarter was 9.4% down 30 basis points from 9.7% a year ago.
As we look ahead into 2025, we expect our SG&A ratio to improve to the mid-9% range from 9.9% in 2024. Financial Services revenue was $54 million with a gross margin of 48%, up from $43 million and 46% a year ago. Driving these results, our financial service team achieved a capture rate of 89%, up from 86% a year ago reflecting the success of our incentive strategies, customer service and close partnership with our homebuilding teams. In the fourth quarter, buyers financed by Taylor Morrison Home Funding had an average credit score of 752, down payment of 23% and household income of $183,000.
Turning now to our value. We ended the quarter with liquidity of approximately $1.4 billion. This included $487 million of unrestricted cash and $947 million of available capacity on our revolving credit facility, which was undrawn outside of normal course letters of credit.
Our net homebuilding debt to capitalization ratio was within targeted range at 20% at year-end. And our next senior note maturity is not until 2027, providing us with financial flexibility. During the quarter, we repurchased 1.4 million shares of our common stock outstanding for [$90 million], bringing our full year investment to 5.6 million shares and $348 million, well ahead of our target.
At year-end, our remaining repurchase authorization was $910 million. Having repurchased a total of [$1.8 billion] of our shares outstanding since 2015 or nearly 55% of our beginning share count, we expect to continue utilizing healthy cash generation to repurchase our shares, utilizing both programmatic and opportunistic strategies.
For 2025, we are targeting total share repurchases in the range of $300 million to $350 million. After considering the midpoint of this repurchase target, we expect our diluted shares outstanding to average approximately $102 million for the full year, including $104 million for the first quarter.
Now I will turn the call back over to Sheryl.

Sheryl Palmer

Thank you, Curt. To wrap up, before we turn the page on 2024, I'd like to take a moment to reflect on this year's achievements of each of our long-term targets. When we introduced these targets last year for sales pace, closings growth, gross margin and return on equity, our intent was to help provide greater insight and evolution of Taylor Morrison following a strategic growth and positioning.
We hit our multiyear targets that we believe are achievable based on the makeup of our entities and investment strategy and diversified portfolio. I am proud that despite the challenges that arose over the course of 2024 from volatile interest rates, highly competitive pressures and extreme weather, we still met or exceeded each of these goals.
By delivering nearly 13,000 homes, we increased our closings volume by 12%, well ahead of the 4% increase contemplated in our initial guidance heading into the year and our 10% average growth target. Along with the stronger volume, our adjusted gross margin of 24.5% was up 50 basis points year-over-year more than 100 basis points better than our initial expectations and at the high end of our low to mid-20% target.
As you've heard this morning, our annualized sales pace of three for the year also met our goal. Combined with nearly $350 million in share repurchases, these results helped drive our return on equity to approximately 16% and set the stage for further expansion this year.
We also entered into the affordable Indianapolis market, prudently increased our controlled lot percentage towards our 60% to 65% goal and made further progress in streamlining our operations for greater profitability.
Most importantly, while 2025 promises for new challenges, some of which we are just beginning to fully understand, we are confident in our ability to navigate the headwinds and deliver results that once again meet the long-term targets we have established.
As our initial guidance for the year suggests we expect to grow our business while producing better than historical margins and returns. As you will hear at our Investor Day, we are committed to outsized growth in the years ahead and believe we have established the operational capability to do so accretively.
I look forward to sharing more in three weeks and as always, want to end by thanking our teams for their dedication and execution. It is because of their efforts that Taylor Morrison has recently been named America's most trusted homebuilder by Life Story Research for an unprecedented tenth year and to forge inaugural most trusted companies in America list where we ranked number 12 out of 300.
Now let's open the call to your questions. Operator, please provide our participants with instructions.

Question and Answer Session

Sheryl Palmer

(Operator Instructions)
Matthew Bouley, Barclays.

Elizabeth Langan

Good morning. You have Elizabeth Langan on for Matt this morning. Thank you for taking the question. I just wanted to start off on gross margins. I know that you noted that incentives are moving higher. Could you talk a little bit about how you're thinking about the cadence for gross margins this year with the higher incentive and with your 1Q gross margin guide in the high 23% range. Would you mind speaking kind of how you're thinking about it in the context of the year in that 23% to 24% range?

Curt Vanhyfte

Yes. Elizabeth, this is Curt. I'll take that one. So again, for the first quarter, we're guiding to the high 23% range. And as I think you can tell by our full year margin guide for year, we're assuming moderating our margins over the course of the year as we take into account the step-up in rates and the fact that we have lot cost inflation that we're going to be taking on over the course of the year. So that's kind of -- I guess the general idea is that, I guess, in summary, is that the margin will moderate over the course of the year.

Sheryl Palmer

And Curt, would you say it's fair? If you look at what came through the P&L in the fourth quarter, probably a little bit different. We're going to see that go up a little bit because rates have gone up. But when we think about what we were offering on the sales floor in the fourth quarter, it's actually probably pretty -- the exit rate is probably pretty similar to what we expect, given rates are generally in the same place.

Curt Vanhyfte

That's fair. .

Elizabeth Langan

Okay. Thank you. And just to follow up on the gross margins a little bit. You mentioned that land costs assuming like 7% this year, what are you assuming around material costs with the potential impact for tariff? And I know that you said that you've reshored a lot of your products, but it would be help to have any color around that.

Curt Vanhyfte

Yes. Another great question. It's very interesting. Up until a couple of weeks ago, I would say that the cost environment was pretty stable as well as the overall supply chain. Like you, we've been following the news relative to the discussions on tariffs.
And so as we look at that, depending on kind of which tariff and you want to speak to, whether it's steel or any of the other tariffs relative to our friends to the north or to the south, we do expect some cost pressure from some of that. If it's just the steel, it's quite minimal from that perspective, maybe $1,200 is a lot. And that would only impact us in the back half of the year.
Relative to the other tariffs that are out there, as we're looking at it and doing our homework, it's really early in the process. And depending on if they come back, when we're looking at it, it might be an impact of $4,000 to $5,000 a house roughly speaking.
But the time that, that would get implemented and the impact end of the year would largely be a fourth quarter kind of time period. So again, we think it's very manageable within the range guide that we gave for the year that has been contemplated in that.

Elizabeth Langan

Okay. Thank you. That's really helpful. Look forward to seeing you guys in March.

Curt Vanhyfte

Thanks very much.

Operator

Michael Rehaut, JPMorgan.

Michael Rehaut

Thanks. Good morning, everyone. Thanks for taking my question. First, I'd love to get a sense for the pricing backdrop. You mentioned that you had only modest incentive -- increase in incentives in the fourth quarter, and you're actually looking for a price increase, if I heard you right in January, so -- which is a little counter to, I think, the rest of the group.
So I'd love to get a better sense of -- number one, your pricing strategy in general, how you are approaching the market, given that perhaps the rest of the market is seeing perhaps a sharper increase in incentives? And also, how much of your guidance includes a step-up in incentives in the first quarter or throughout 2025?

Sheryl Palmer

Yes. Fair questions, Michael. Thanks for them. Let me start with kind of the fourth quarter. We saw kind of pricing power in just about 50% of our communities, so we felt really good about the sales performance in the fourth quarter even as you mentioned, a very difficult selling environment.
Looking month-to-month over the quarter, performance felt like it was kind of more in line with historical patterns, albeit with maybe a few more little obstacles. But honestly, if anything, I was a little surprised how consistent each month was within the quarter, seeing a very, very small spread between the months. As we moved into '25, the price increase that you spoke of, we actually did do a national price increase. I think it was on the second of January. The January started off pretty slow.
I'll be honest, very pleased with the pickup we've seen since mid-January and further pick up into February. Having said that, as I mentioned in my prepared remarks, we had a very robust Q1 last year. So up against a very difficult comp, I'm not sure if we'll catch it, but I'm very optimistic about the traffic we're seeing. As you would expect, Mike, the pricing opportunities is very much a community-by-community decision. We even had one or two communities in the fourth quarter and maybe in January that we actually had Thabo.
And so when you're looking at these distinct locations with our move-up and active adult on unique lots, we actually do have pricing power. As I mentioned to Elizabeth, when I think about what came through the P&L in the fourth quarter, I would expect a small tick up in incentives. When I look at what we were actually offering on the sales floor, I think where we ended Q4 is generally what our expectations are for 2025.
So yes, our guide does contemplate the environment we're in today, if we see something meaningfully different and rates go up significantly from where we are today, I'm not sure we'll have that captured. But generally, we feel we're in a pretty good place when we look, as Curt mentioned, the combination of our to-be-builts and the higher-margin opportunity they have as well as what's required in our first timers.
And maybe I'll wrap that up, Mike, with just one more comment. And that's just the strength of our buyer groups. When we look at the move up in the resort lifestyle, we just don't see the same need on the incentive side on rates because they're taking smaller loans. And obviously, within our resort lifestyle, we're still seeing a great deal of cash.

Michael Rehaut

Great. No, I appreciate all the thoughts there, Sheryl. Maybe secondly, on the SG&A guidance, looking for a little bit of leverage this year. And I think that's also in contrast perhaps to some of your peers looking for maybe flat to even slightly up SG&A given the tougher environment. I would think some of it is coming just from the operational leverage with the expectation for some volume growth.
But I'd also be curious about the marketing dollars and the commissions that you're putting out there, how would you compare just in the fourth quarter versus a year ago, how does that line up? You mentioned the NAR settlement. But in general, obviously, also just perhaps a slightly more competitive backdrop that would require more investment in this area. So how you're thinking about 2025 in terms of those two buckets from a leverage or a year-over-year perspective?

Sheryl Palmer

And maybe I'll take the NAR kind of broker world and ask Curt to pick up on just overall SG&A in total. I think what we're seeing, Mike, with NAR is the consumer is just becoming more aware. We're getting a lot more calls in advance, calling in to understand what our commission rates are. I think the consumer understands the game that's being played, and I think that is aiding to in the reduction of co-broke.
As I mentioned in our prepared remarks, when I look across our virtuals, we are finally really beginning to see some relief in broker commissions. I think we saw more than a 10% reduction year-over-year in the fourth quarter. When I looked at January, we went from 67% on our online appointments down to 60%. So when we start seeing that come through, all of our virtual tools at that level, it's going to be very meaningful. You want to pick up just on overall?

Curt Vanhyfte

Yes. I think, Mike, what I would just suggest is that with the step-up in closings and the associated kind of revenue growth with that and the work that our teams have done to continually focus on running an efficient business, we're able to achieve some SG&A leverage going into this year.
So it's a tremendous focus of the team. We're seeing it up and down kind of the overhead structures, whether it's on the sales side and/or even within kind of the Advent kind of side of it as well. So -- but overall, that's kind of the genesis.

Michael Rehaut

Great. Thanks very much and see you next month.

Sheryl Palmer

Okay. Thanks, Mike.

Operator

(Operator Instructions)
Mike Dahl, RBC.

Mike Dahl

All right. Thanks for taking my question. I want to stick with kind of the pricing and incentive OpEx. So it's interesting kind of testing the market with the broadened base, but at the same time, you're messaging that the net of incentives and cost inflation is going to bring margins down over the course of the year. So this kind of -- would you characterize this as pretty modest in aggregate, just take a little bit where you can just to offset some pressures? How would you characterize kind of the magnitude of the attempted base increases in aggregate?

Sheryl Palmer

Yes. If I'm understanding your question correctly, Mike. I mean it really does come down to the mix of communities in the portfolio. When I think about the pressures across the business, there's -- it's undeniable that we are seeing more pressure with the first-time buyer and what we need to do to get them into their home. The good news, we've talked about for a number of quarters, that we really personalize the needs of our individual buyers and make sure we put a program that works for them.
Being able to do that and kind of not spreading forward commitments across the portfolio is an absolute advantage. Earlier this year, we actually introduced this new program by build Secura Flex program that assures customers that are not about to close -- aren't buying a completed inventory that we're going to deliver them a rate that's generally 1% under the market rate at the time they close, that gives them more assurance and that nears costly as a forward commitment for someone that's going to close in 45 days.
So as you start spreading these different tools, recognizing that 1/3 of our buyers are the first-time buyers with the most expensive incentives. And you compare that to the other tools and then the impact that we see with our resort lifestyle buyers, it gives you, in total, I don't know if I'd call it modest, modest plus. But certainly, that along with the land appreciation, we're going to see some margin pressure, but I feel that we're able to kind of stand tall with it in comparison.

Mike Dahl

Yes, I think the comparison is clearly positive. Just one quick follow-up for clarification there. And then a second question. When you talked about the moderation through the year. Does your guiding vision you're staying within the '23 to '24 each quarter of the year?
And then if I could sneak a second question and just on the labor front, any there's obviously some noise in the market around what may or may not happen with various parts of integration? And then are you seeing anything today on your job sites that's noteworthy or how do you kind of balance and mitigate some of those potential issues?

Curt Vanhyfte

Mike, I'll take the first part of that, and maybe Sheryl can take the, I guess, the latter part on the immigration. But overall, from a margin guide perspective for 2025, what I would say is right now we're guiding for Q1 and for the full year and not really providing any additional guide on the other quarters over the course of the year at this point in time. But overall, to your point, we are assuming some moderation over the course of the year and feel very good about our margin for the year overall and staying within that range despite even some of the noise that's out there. So Sheryl, I would throw it to you on the immigration front.

Sheryl Palmer

You bet. More to come next quarter on the margin, right? On immigration, happy to report that we haven't seen anything hit the job site. Certainly, we've got protocols in place. We, across the business have e-verify protocols. Even though we've seen activity within markets, we have not seen anything hit our job sites. I'll be honest, Mike, coming into the year had a little bit of fear that we would see some absenteeism of folks that maybe they didn't have a specific issue, but maybe a family member did and they may not show up. And we just haven't seen that so far. So we'll keep you posted. But to date, I'd say there's been no disruptions.

Mike Dahl

Okay. Alright. Thank you.

Sheryl Palmer

Thank you.

Operator

Trevor Allinson, Wolfe Research.

Trevor Allinson

Hi, good morning. Thank you for taking my question. First one on demand by geography focusing specifically on your central region. I know that's not exclusively Texas, but it has a lot of Texas in it. And given the softness in that region, you increase in absorption was pretty notable. So can you just talk about what is driving your strong performance in that region? And any specific metros to call out?

Sheryl Palmer

Yes, I certainly can try to help. It's honestly -- I'm happy to report, it's generally across the Board. But if I were to have a couple of call outs, if I go back to 2023, we probably all recall the days where Austin was taking some disproportionate pain they had seen some of the highest pace in pricing. And so the year of '23 was a little bit more of a struggle. So I'd say part of it was just a tremendous job on our Austin team sales were up nearly 20%. Absorptions were up nearly 30%.
When I look at Houston, another great story, lots to talk about. You've heard Erik, Curt and I all talk about the repositioning of our communities to self-developed. We've really seen pieces up and discounts down, so good stuff there. Dallas, it's a whole new business with kind of outsized growth this year and planned in the coming years, doubling in size.
When I go to the Carolinas, honestly, we're seeing equal strength with community count, sales and closings up and honestly, Sammon Raleigh and Atlanta. So it's actually pretty equally weighted across the central, which is very encouraging.

Erik Heuser

And Sheryl, I might argue relative to submarket positioning. We've alluded to the fact where we test where we're playing in the market and where we're not. And in each of those circumstances are the supply of resale homes in the places that we're operating are less than the (inaudible). So I think that helps relative to the resale conditions. .

Sheryl Palmer

Great point.

Trevor Allinson

Yes, yes, and your performance, we clearly support that as well. And the second question demand for resort lifestyle buyers. It's been stronger in recent quarters. This quarter, it took a bit of a step back. You called out some impacts from the hurricane also some community count close out, if you may have weighed on the number. Can you talk about your expectations for growth by your segment in 2025? And do you think there's a meaningful change in resort lifestyle closings as a percentage of your 2025 -- closings in 2025 versus 2024? Thanks.

Sheryl Palmer

Yes. No, fair question. Let me start by saying you're absolutely right. When I look at the fourth quarter, we had a number of impacts. So three hurricanes certainly didn't help, even though our communities fared very well. I would tell you, we had a number of days, maybe even qualified as weeks at most -- many of our communities were closed due to prefer hurricanes as well as recovery.
At the same time, because of all of that, we also changed the timing of some of our openings. So in total, I think we had three that were in put out and three that we pushed openings until early in the year, along with the timing of amenities.
So I think there was a number of factors. When I look at kind of the overall performance of esplanade really excited about some of the things across the country and new esplanade that are in the works today at different levels of either underwriting, horizontal development buying the land.
But when I look at '25, probably pretty close to '24 from a total penetration, but I would expect -- we'll see if the penetration grows as we grow. The penetration may stay relatively similar, but I would tell you that we're adding a number of communities, and I would expect to see a slight uptick in the esplanade penetration and just active adults because that gets a little blurred with our move up. So the strength that you're seeing in our move-up dominantly our second move up, I think others the line of them showing up in our more traditional communities compared to just esplanade.

Trevor Allinson

Great. Thank you for all the color, and see you guys next month.

Sheryl Palmer

Thank you. Look forward to it.

Operator

Alan Ratner, Zelman & Associates.

Alan Ratner

Hey, good morning. Congrats on a great quarter and year.

Sheryl Palmer

Thank you.

Alan Ratner

It's really great to see the content there in the challenging environment. First question on the margin and incentive topic. Yes. Your rate buydown usage is obviously well below a lot of your peers. And I know you referenced Sheryl many times the quality of your land, which you think is really driving your strong margins. I'm guessing, even within company-wide though, there are differences from community to community and your use of incentives and your prevalence.
And I'm hoping to get a little more insight into in the communities where you are offering more aggressive incentives and rate buydowns? Is there a common theme or driver that's contributing to that? Is it more resale competition in those particular areas?
Is it -- these are entry-level communities and you're going head-to-head with more spec-focused entry-level builders? Is there anything you can kind of point to within your own portfolio for the communities that have below average incentives versus above average?

Sheryl Palmer

Yes. It's a really interesting question. And you can imagine, Alan, we've dissected this pretty good. So I'll start by saying kind of when I look at the rate in the fourth quarter. It's the absolute coupon rate that we closed people at.
It's probably the lowest we've seen in over a year. And I think that's just kind of a point of time when we saw where rates were kind of late summer, early fall, where we're using -- and sorry to be redundant, but where we're really using and where we're seeing the most competitive pressure would be within our first-time buyer communities.
There is not -- I mean, unfortunately, with those consumers is very, very black and white that what they need to do to be able to qualify, our pre-calls are more challenged. They're very, very patient, are payment conscious. The ratios are a little bit more difficult. But the numbers of that first-time buyer, they're still very large, it's a very large penetration because they're trying to get out of what I would say are higher rents today.
One of the examples I'll share that I think helps you understand really the benefit we're seeing with our consumers. That program that I mentioned, Alan, are [Bible secure] Flex program. Instead of having to just discount the house to do a very expensive for commitment but we're assisting a consumer guaranteeing that they're going to have a 1% reduction to the market rate.
Let's say, on an average, let me take a $500,000 house with a 20% down payment, a $400,000 loan. To do that, it's costing me, let's say, approximately $16,000. To get that consumer to the same monthly payment, it would cost me $60,000 to $65,000 and price adjustment.
So when I can use these tools most efficiently to help that consumer and I'm using $16,000 as compared to what we're seeing things in the market today that are 2.99, 3.99, those can cost 700 basis points, 800 basis points, 900 basis points. We're doing some of these programs at a fraction and we're not taking it off the price, which is also protecting our margin. But there's not just kind of one special pill here.
It's very personalized to the consumer. But because we're not spreading these forward commitments across the portfolio, and it is a much smaller, I think, than probably what the industry is recognizing, it's really helping retain our margin strength.

Erik Heuser

And thematically, Sheryl, I think --

Alan Ratner

Hit a number of them.

Erik Heuser

Alan, you mentioned resales, but I think land supply and land competition remains highest on kind of those first century more tertiary markets. And so that's going to create a little pressure through the system. And then also, as you mentioned recalls, I think the new home competition, as we think about supply is also the heaviest out there because across the US. I think the unsold finished new homes per community is 3.1 first time positions versus 2.5% for move up. So that insulates us a little bit across our colocation portfolio.

Sheryl Palmer

Yes. It really does. And Alan, we're not suggesting that with these entry-level buyers that we're not having to spend more to get them. It is a very competitive environment as we move out of the kind of the core and move up. And it's not our whole portfolio. The diversity of our portfolio is truly the benefit that you're seeing.

Alan Ratner

Got it. That's all really helpful and helps frame, I think the strength you guys are seeing compared to others. Second question I had, maybe pivoting to the land market. You mentioned expectation for 7%, lot price inflation flowing through the P&L this year. Obviously, that's a function of what we were seeing in the land market a couple of years ago.
I'm curious if you've seen -- we've heard a little bit of this, a little chatter of some loosening or softening, I guess, in land prices, maybe some more willingness for land owners to renegotiate current option contracts. And that wasn't the case a couple of years ago when builder margins were 30% plus, but now with some builders kind of getting back down to more normalized levels, I think it has to enter the conversation. So I'm curious if you've had any of those conversations with your land sellers or the folks kind of holding your contracts and what your general view is of land prices going forward here over the next couple of years?

Erik Heuser

Yes. Alan, it's Erik. Thanks for the question. Yes, to your point, I think your guys' research and others would suggest that third quarter, fourth quarter, the demand for land categorically stepped down just a little bit. That doesn't mean it's easy.
It's always hard out there. But I do think it means, to your point, that we've got a little bit more flexibility in terms of deal structure. So that's where we're seeing it as we really work to continue to increase our percent control to the OBS create greater efficiency in the balance sheet and increase our returns. That is front and center of all of our operators' minds to make sure that we're structuring deals in an efficient way. So I think that's where we're seeing it, not necessarily an absolute price but flexibility.

Alan Ratner

Got it. Thanks, Erik. Appreciate it, guys.

Operator

(Operator Instructions)
Carl Reichardt, BTIG.

Carl Reichardt

Thanks. Good morning, guys. Appreciate the times. Alan and Trevor stole all my questions, but I have one follow-up on Alan's, and I'd like to ask about land banking. And well, I missed that -- they're great questions. I want to add about land banking costs. And so my understanding at least out there is the amount of capital available for land banking continues to be significant. But I'm curious as to whether or not your expectation is that the cost of said land banking, which is expensive, will begin to moderate too.
And part of what I'm curious about is, as you look at your change in option mix, I'm assuming the vast majority of that change is related to land banking deals as opposed to sort of finished lot option contracts or farmer options.
Is there a particular sort of trade-off that you look for in terms of risk versus takes versus option upfront? And what do you think the trade-off is between gross margin impact and return on equity impact if you can sort of make it mathematical. And that's all I have. Thanks all.

Sheryl Palmer

That was a short one.

Erik Heuser

Now, you be (inaudible) No, appreciate it. I'll start with kind of appetite and access, yes, I think there's been a number of well-heeled players that have been around a long time. And I think that, that role has evolved positively in terms of risk mitigation. And there's been new entrants. And so I would say the demand for it really is more of a credit positioned vehicle has been really good and has actually brought down the cost.
And so when we started doing a couple of years ago, we were able to find a very attractive interest rate and to your point, trade-off relative to gross margin, and I'll come back to that. Rates popped up a little bit. We sidestepped and we're kind of fully back in it. And I think it's a sustainable systemic tool for us to use.
In terms of the trade-off, just in terms of focusing on gross margin, our last larger facility, we modelled to be about 197 basis points gross margin hit for a 750 basis points impact to return. So kind of a 3.8x trade for that.
And then use of tools, it's going to be an important one for us. But I would also say that seller financing has been actually our biggest tool in the past and remains a strong tool for us. So there is a fair number. We've got joint ventures joint development agreements, option takedown, seller financing and land banking, all to assist us to continue to increase our level of control over time.

Carl Reichardt

I Appreciate the help. Thanks all. See you next month.

Sheryl Palmer

Look forward to it.

Operator

Buck Horne, Raymond James.

Buck Horne

Hey. Thanks. Good morning, everybody. Going back to the land and the lot cost inflation question that was earlier there. And just ways to maybe mitigate some of those costs. I'm just wondering if you think about leaning into just a more heavy mix of self-development lots. Or do you think in this year ahead or forward, you'll put more emphasis on cell developments? Or conversely, are you starting to see more finished lots on the ground that are already fully developed at more reasonable prices that could help mitigate the cost inflation?

Erik Heuser

Hi, Buck, it's Erik, and I'll take that. Yes, I would say that we've experienced a pretty significant pivot over the last 5-plus years relative to finding finish likely and having to sell up. Fortunately, that's been a core competence of ours. And I would say a good 85% to 90%, give or take, are coming through the system, our raw and self-developed.
Now the important follow-up on that is that we, almost in every instance, look for ways to mitigate that coal exposure by tying a tool to it, a financial tool. So we are not finding a plethora of finished lots out there. We are used to self-developing and we're kind of looking at that going forward from today as well.

Buck Horne

Got it. That's very helpful. And then just quickly going back to the Yardley business, if you got a minute to talk about single-family rentals here. Just curious kind of what you saw going into year-end in terms of the lease-up rates and the absorption pace of the build for rent communities? Is it getting more or less competitive with the amount of supply that's out there? And just any other thoughts on investor interest and pricing of those assets?

Erik Heuser

Yes. Another good question, Buck. So the two assets that we mentioned that we sold, those ran at a 14 to 15 a month lease rate through their duration, which was just a little bit under what we originally modelled. And we have felt a little bit of the multifamily. But again, with these horizontal apartment kind of niche play, there is less competition as we think about the specific renter profile.
Oftentimes, we're getting our renters walking across the street from the garden-style apartment and kind of choosing the horizontal apartment app. So we're watching the multifamily supply that has come on '24 and I think through '25, but not as impactful as you might have otherwise expected.

Sheryl Palmer

You mean early in the year, Erik, we have about 11 communities that are in lease today and they're actually --

Erik Heuser

Yes. And to your point, the last three weeks, four weeks, we've been running in the 40 plus for that particular portfolio. So holding up well.

Buck Horne

Very helpful. Thank you, guys. Congrats.

Operator

Alex Barron, Housing Research Center.

Alex Barron

Yes, thank you. Good morning. I'm not sure if I missed it or if you mentioned it, but can you elaborate on the other income line item, the minus $47 million versus $80 million a year ago. What was included in that?

Curt Vanhyfte

Hi, Alex, this is Curt. I'll take that. Yes, there's a couple of things in there. Number one would be there was a legal reserve set up for -- in Q4. The court awarded the plaintiffs final attorney fee for the Solivita case that was ruled on back in 2023.
So we're seeing about a $17 million incremental amount there being recorded to other income and expense. There's also some pre-acquisition write-off costs for projects that we're no longer pursuing. That's about, in total, about $6.5 million for the quarter.
And then the last main item that I would say is in other income expense is an increase in unrealized losses for prior policy periods in our captive insurance company that we refer to as [Beneva]. And that was like, I think that's, what, roughly $17 million for the quarter as well. So those are the big components of what is coming through other income and expense for the quarter.

Alex Barron

Got it. Thank you. And then likewise, what drove the increase in the amenity line item versus previous quarters? And I guess, along those lines, where do you guys account for the sale of the [Yardley] portfolio? .

Erik Heuser

Yes. The sale of the Yardley assets come through amenity revenue. And so that's what you're seeing there is the two sales. We had one sale in Dallas and one in Phoenix that contributed to the revenue component to that.
And then for the quarter, what we're also doing is we had a charge on the remaining last multifam unities from the William Lyon acquisition to the tune of just under $18 million that is running through what is called amenity and other expense in cost of revenue.

Alex Barron

Okay. So all these are onetime nature type things. Thank you so much.

Erik Heuser

That's correct. Yes. Thanks, Alex.

Operator

Thank you very much. We currently have no further questions. I'd like to hand back to Sheryl Palmer for any closing remarks.

Sheryl Palmer

Well, thank you so much for joining us today. Look forward to seeing many of you next month at our Investor Day. Stay well.

Operator

So we conclude today's call. We'd like to thank everyone for joining. You may now disconnect your lines.