LGI Homes Inc (LGIH) 2022 Q4 法說會逐字稿

Hello, and welcome to the LGI Homes Fourth Quarter 2022 Conference Call. Today's call is being recorded, and a replay will be available on the company's website at www.lgihomes.com. After management's prepared comments, there will be an opportunity to ask questions.

I'll now turn the call over to Josh Fattor, Vice President of Investor Relations. You may begin.

Thanks, and good afternoon. I'll remind listeners that this call contains forward-looking statements, including management's views on LGI Homes business strategy, outlook, plans, objectives and guidance for 2023. Such statements reflect management's current expectations and involve assumptions and estimates that are subject to risks and uncertainties that could cause management's expectations to prove to be incorrect. You should review our filings with the SEC for a discussion of the risks, uncertainties and other factors that could cause actual results to differ from those presented today. All forward-looking statements must be considered in light of those related risks, and you should not place undue reliance on such statements, which reflect management's current viewpoints and are not guarantees of future performance.

On this call, we'll also discuss non-GAAP financial measures that are not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be found in the press release we issued this morning and in our annual report on Form 10-K for the fiscal year ended December 31, 2022, that we expect to file with the SEC later today. This filing will be accessible on the SEC's website and in the Investor Relations section of our website.

I'm joined on today's call by Eric Lipar, LGI Homes' Chief Executive Officer and Chairman of the Board; and Charles Merdian, Chief Financial Officer and Treasurer.

I'll now turn the call over to Eric.

Thanks, Josh. Good afternoon, everyone, and welcome to our 2022 earnings call. In preparation for today's call, we took a look at last year's commentary and it's remarkable what a difference a year makes. When we spoke last February, we were talking about over 10,000 closings. Phone's ringing off the hook. Waiting list of people wanting to buy. Investors lining up to purchase multiple homes. In fact, demand was so strong, we turned off marketing. And we made it clear at that time, we are taking advantage of the high demand environment because we knew it wouldn't last and it didn't. 2022 was a much different year.

Let's look at some of the numbers. Home closings last year were 6,621. This was not the goal we set. And to be frank, we were disappointed we missed our guidance even by such a narrow margin. We're in the affordable housing business, and during the year, affordability got constrained. Supply chain tightened, costs inflated and home prices went up. Beginning in January, mortgage rates started to slowly increase but quickly accelerated as the year went on. By September, they surpassed 6% for the first time since November of 2008. One month later, rates exceeded 7% for the first time in over 20 years.

As affordability tightened, buyers paused and the market decelerated. And as it did, we got back to basics. We expanded our marketing. We got back to training. We had to work for every sale. We invested time and resources to make certain our people were on process, building, selling and closing homes, the LGI way. As a result, we had number of notable achievements last year. For example, let's talk about absorptions. For the ninth consecutive year, we averaged at least 6 closings per community per month, an industry-leading result that demonstrates the success of our systems, processes and people.

Going deeper here, our #1 market last year was Dallas/Fort Worth with 11 closings per community per month. San Antonio was second with 9.3. Third was Charlotte with 9.1, Houston delivered 8.8 and rounding out the top 5 was Raleigh with 7.9 closings per community per month. Congratulations to the teams in these markets and your outstanding results. We finished the year at the high end of the guidance we issued last quarter with 99 active communities.

We delivered one of our most profitable years ever. Our gross margin for the full year was over 28% and adjusted gross margin was over 29%. Our pretax margin was more than 18%, and our net income margin was more than 14%. Each of these metrics represents a new full year company record. On the inventory side, we reduced our total owned and controlled lots by almost 22%.

And as we projected on our last call, we rightsized our completed and in-progress inventory to align with demand and ended the year with approximately 3,300 homes. We focused on cash flow and preserving capital, ending the year with a net debt to capital ratio below 40%, representing a 250 basis point improvement over the third quarter. While delivering these positive results, we still found opportunities to give back to our local communities.

On September 22, we held our annual Service Impact Day, volunteering over 7,500 hours and contributing more than $260,000 in support of 61 organizations in 19 states. We're proud to announce the completion of the LGI Homes Education and Visitors Center for the SIRE Therapeutic Equestrian Center. This new facility represents a $750,000 commitment from LGI Homes and is specifically designed to support the special needs of SIRE's riders and their families.

It's a privilege to support SIRE's mission, and we're grateful for the important work they are doing in the community. The LGI giving initiative enabled us to make meaningful positive impacts across the country last year.

With that, I'll turn the call over to Charles for more details on our record financial results.

Thanks, Eric. Starting with the fourth quarter. Our revenue was $488.3 million, a decrease of 39% year-over-year, primarily due to a 42.7% decrease in closings to 1,448 homes and partially offset by a 6.3% increase in our average selling price to $337,198. Our average selling price decreased 4.6% from the third quarter due to incentives and lower sales prices and to a lesser extent, a heavier weighting of closings in lower-priced markets in the fourth quarter. We closed 431 homes through our wholesale business in the fourth quarter, representing 29.8% of our total closings compared to 369 homes or 14.6% of our total closings in the fourth quarter last year.

Gross margin as a percentage of sales in the fourth quarter was 20.7% compared to 26.4% in the same period last year. The 570 basis point decrease was due to incentives and lower sales prices as well as higher input costs working through vertical inventory. Adjusted gross margin in the fourth quarter was 22.1%. Adjusted gross margin excludes $5.4 million of capitalized interest charged to cost of sales and USD1.4 million related to purchase accounting, together representing 140 basis points.

Combined selling, general and administrative expenses were 12.3% of revenue for the fourth quarter. Selling expenses were $33.3 million or 6.8% of revenue compared to $42.6 million or 5.3% of revenue in the fourth quarter of 2021. The increase as a percentage of revenues was driven by increased investment in advertising and was partially offset by lower variable expenses such as sales commissions. General and administrative expenses totaled $26.9 million or 5.5% of revenue in the fourth quarter compared to $27.9 million or 3.5% of revenue in the same period last year. Pretax income for the fourth quarter was $46.9 million or 9.6% of revenue. Fourth quarter net income was $34.1 million or USD1.46 per basic share and USD1.45 per diluted share.

Highlighting a few full year 2022 results. Revenue was $2.3 billion, a decline of 24.4% primarily due to a 36.6% decrease in closings, offset by a 19.2% increase in our full year average sales price to $348,052. During the year, we closed 1,233 homes through our wholesale business, representing 18.6% of our total closings and generating $340.6 million in revenue. We currently expect our wholesale business will represent between 5% and 10% of our total closings in 2023.

Our full year gross margin was 28.1% and adjusted gross margin was 29.2%, both new company records. Combined selling, general and administrative expenses were 11.1% for the full year. Our pretax net income represented 18.1% of revenue, also a new company record. Our effective tax rate last year was 21.9%, and we estimate our rate for 2023 will range between 23.5% and 24.5%. Finally, our net income was $326.6 million or USD13.90 per basic share and USD13.76 per diluted share. Fourth quarter gross orders were 1,431. Net orders were 895 and the cancellation rate during the quarter was 37.5%. The full year cancellation rate was 24.4%. We ended the year with 702 homes in backlog valued at $252 million.

Turning to our land position. At December 31, we owned and controlled a total of 71,904 lots, a decrease of 21.7% year-over-year and 6% sequentially. We ended the quarter with 58,720 owned lots, an increase of 7% year-over-year, with a decrease of 3.1% sequentially. Of our owned lots, 47,857 were raw land or land under development and approximately 30% of those lots were actively being developed at year-end. Of the remaining 10,863 owned lots, 7,555 were finished vacant lots.

We target approximately 6 months of expected full year closings and vertical construction at any one time. During the quarter, we continued to release starts at a pace chosen to right-size our inventory. And in the fourth quarter, we started 646 homes compared to 1,653 in the same period last year and 840 last quarter. As a result, at December 31, we had 3,308 completed homes, information centers or homes in progress. This was a decrease of 19.5% from the third quarter and aligns our vertical inventory with our outlook for 2023 closings.

At year-end, we controlled 13,184 lots, a decrease of 64.3% year-over-year and 16.7% sequentially. The decrease was a result of pausing our land acquisitions activities in the second half of the year and our decision to walk from deals that no longer met our criteria or where we believe similar opportunities might be available at more compelling values or terms in the future.

Turning to the balance sheet. We ended the quarter with $32 million of cash, approximately $2.9 billion of real estate inventory and total assets of over $3.1 billion. Total debt at the end of the quarter was $1.1 billion, and our debt to capital ratio at year-end was 40.5% and our net debt-to-capital ratio was 39.8%, representing sequential improvements of [290 and 250 basis points], respectively.

We ended the year with $268.6 million of total liquidity, including cash on hand and USD236.6 million available to borrow under our revolving credit facility. Similar to last quarter, we paused stock repurchases in the fourth quarter, focusing instead on maintaining liquidity and investing to develop the land that will drive our community count growth. We ended the quarter with over $1.6 billion in total book equity, a 17.7% increase year-over-year, and our book value per share increased 20.8% to $70.47 per share as of December 31.

At this point, I'll turn the call back over to Eric.

Thanks, Charles. We're pleased with our results in 2022, not in spite of the challenges, but because of them. Tough times reveal what we're made of, and I'm proud when I look around and see the character and commitment of our employees. Our success in 2022 reflects the effectiveness of our systems and people and gives us confidence as we head into 2023.

While news headlines continue to focus on layoffs, we're in hiring mode. On February 6, we welcomed 106 new sales professionals to our corporate headquarters for training. This is our largest sales training class to date. We started to see opportunities on the land side of the business. For 5 months, we didn't approve a deal. However, in January and February, we approved 3 new finished lot deals that will deliver closings over the next 12 to 18 months. We're still highly selective on new deals and expect that most of our focus will be on developing land we already own to drive community count growth.

Our marketing team is doing an incredible job connecting with new customers. In the fourth quarter, we generated over 90,000 leads. And so far in 2023, it's gotten even better. In January alone, we generated more than 50,000 leads, averaging over 500 leads per community. This trend continued into February. As a result, our weekly retail net sales pace over the first 8 weeks of the year is up approximately 150% over our weekly pace in the fourth quarter.

To frame it another way, in the first 8 weeks of 2023, we generated 7.2 net sales per community compared to the 2.9 net sales we averaged in Q4. While we're excited by these achievements, we know that a positive trend over a period of weeks, if no guarantee of a great year. We are approaching 2023 with tempered optimism in managing our business conservatively. We're matching our vertical inventory to closings. We're working with our trade partners and suppliers to reduce costs, and we're allocating capital to fund our long-term growth.

With those points in mind, here is our current outlook for 2023. We expect to close between 6,000 and 7,000 homes this year at an average sales price between USD335,000 and USD350,000. New communities are coming online, and we expect to end 2023 with between 115 and 125 active selling communities with an additional 20% to 30% growth in community count expected in 2024. We expect full year gross margins between 21% and 23% and adjusted gross margins between 22.5% and 24.5%. Finally, we expect that full year SG&A expense as a percentage of revenue will range between 11.5% and 12.5% as we invest in advertising to drive leads and increase headcount to support our community count growth objectives.

I'll close by thanking all of our employees for their commitment and enthusiasm this past year. Our positive results are proof of our ability to successfully manage through uncertain times. I'm excited about all that will accomplish together in 2023.

Now we'll open the call for questions.

(Operator Instructions) Our first question comes from the line of Michael Rehaut with JPMorgan.

Great. I appreciate all the guidance and the commentary. I wanted to hopefully try and get a little finer granularity on how you're thinking about the first quarter. Obviously, if you look at your fourth quarter, your gross margins were below your fiscal '23 guidance range. And so I'm curious if as you perhaps continue to right-size inventory or you're in a little bit of a -- the current environment may be a little more challenging if we should be expecting the first quarter to be similar to the fourth quarter and how to think about gross margins as the year progresses and your confidence? Or what's driving the view that things will be improving from 4Q levels as you progress in '23?

Yes, Mike, this is Eric. Great question. [And so,] yes, we expect Q1 gross margins to be similar to Q4. And when interest rates spiked up to 7% in Q4 and our sales were slower, we focused on cash, we focused on moving the standing inventory as a spec builder that turns inventory quicker than most builders, we didn't have as much of a backlog. So most of our backlog has been closed, led to our record-breaking gross margins for the year. And then we just need to find the price associated with moving inventory and a lot of our peer group have talked about that. And that price led to a lower gross margin, but also is working from a sales standpoint.

So really excited about the first 7 or 8 weeks year of sales averaging 7.2 retail net sales per community. And we've been raising prices as we go as our gross margin applies implies for the year. We plan raising -- increasing gross margin through a combination of both raising prices and also the homes that are closing in Q4 and also in Q1 were built at the most expensive house costs. So every time we close the house, if the price is the same, gross margins will be improving.

That's helpful, Eric. I appreciate it makes sense. I guess, secondly, you mentioned the sales pace for the first 7 -- I think it's 7 weeks, correct me, if I'm wrong, so far this year. Wanted to view though, on -- sometimes you're able to give us a little sense of how you expect February to shape up from a closing standpoint. And maybe just a little clarity, when you talk about the retail sales pace or net sales pace, obviously, there's a wholesale component. And I was just wondering if the overall total consolidated net sales pace is -- can we think of that as a similar type of number?

Yes. The wholesale component last year, it was a larger percentage of our business. The first quarter, we anticipate it being about 10% of our closings and then we guided to 5% to 10% for the year. February closings, we expect to close approximately 450 for the month of February. So a pretty significant increase over the 331 from January. And then we expect these first weeks of the year improving in March as well, having a good start to the year. We said 8 weeks in the first week, we're counting the week ending January 1, I believe, in our number, which was even makes 7.2 even more positive because that last week of the year wasn't as strong, but we went ahead and included that number as well.

Our next question comes from the line of Truman Patterson with Wolfe Research.

Eric, just wanted to follow up on that gross margin guide in your comments around raising prices. Have you all actually been able to start raising prices here early in the year? Or is there some sort of maybe mix effect as you all have pulled back on wholesale?

Yes, there is a mix factor in our gross margin guide. Gross margins [in the West]. We've had to do more discounting in the Western United States. So there's a mix component. We did raise prices in a number of different communities in February because we've seen accelerated demand. We believe we found the price floor in a lot of our communities that has led to increased absorptions. And now at 7.2 net orders per month, that says that we should be raising prices from here.

The big [asterisk] on that is what is rates doing, rates spiked again last week. And I think our raising prices will be in conjunction of keeping an eye on affordability, keep an eye on rates are doing, keep an eye on the monthly payment because we are seeing a lot of demand. We talked about the amount of leads we're getting 10,000-plus people every week inquiring about homeownership, but they need to qualify and higher rates, plus prices makes it more harder to qualify in some cases.

Okay. Got you on that. And then just for clarity, the 7.2 net absorption -- order absorption, that's kind of the monthly level for January and February, not the 2 months combined, right? I'm asking because the midpoint of your '23 closings guide of 6,500 implies like 5 closing absorptions per month. I'm trying to understand whether that metric is capped in any way due to the level of developed lots or spec availability. You all intentionally pausing starts in the fourth quarter. Anything -- any color there would be helpful.

Yes. I think a couple of points. First, that's the blended rate between January and February, the 7.2. We can get back to you on what the difference is, but it's been strong absorptions retail net sales for both months. The other thing I would talk about in our guidance, you're correct, the guidance implies a slower absorption rate. Hopefully, that's conservative, but we want to be conservative. We don't know what rates are going to be and our gross margin, we plan on raising prices, which should slow absorption as we go. And the other factor is the January and February closings, which was based on fourth quarter sales at 2.9 will have an impact. So the 7.2 sales were starting is going to help in February, but have a bigger impact in March and April throughout the year. So blended together is how we came up with our closing guidance.

Our next question comes from the line of Carl Reichardt with BTIG.

Eric, of the 120 communities at the year-end target the midpoint of the range you gave, what is your net openings at closings for the year of communities in your plan?

We may have to get back to you on that, Carl, but just looking at the Board in my office, which you are familiar with.

Yes, I am.

Net wise, we're opening 20, but we're probably closing out 40 to 50, closing out -- opening 40 to 50 and closing out 20 or 30 is probably a pretty accurate statement.

Okay, super. And then the -- you talked about raising prices, as you said, and you found the price floor in some of your markets. Do you have a sense, Eric, as to roughly all in, including incentives and base price cuts or however you look at it, what do you think the peak to trough decline in asking price was for LGI?

That is a great question because there's a mix component there, Carl. So we may have to get back with you on that. But we are seeing customers select smaller plans for the same monthly payment instead of selecting the 1,600 or 1,800 square foot house. We're seeing a lot of 1,300 or 1,400 square foot houses selected or purchased. We're also working on new floor plans that have smaller square footages. That's not a trigger we can pull in a lot of communities, but some communities are rolling out smaller square footage plans to help with affordability. So it's really a community by community as far as that absolute trough. We don't have a lot of similar communities with similar floor plans, but we can probably get back with you on that. I would say 10% to 15% would probably be a really good estimate.

Okay, super. And just last real quick. Roughly, what percentage do you expect Terrata to be of your closings in '23?

Approximately 5%.

5%. Great. Appreciate it.

Our next question comes from the line of Jay McCanless with Wedbush.

So I just want to check some math here. If net orders are running 7.2 for the first 8 weeks, and it looks like net closings or your closing absorption is running around 4, if you blend January and February. Is that about the right fallout rate that you're taking that many orders, but you're still seeing a pretty high cancellation rate on them?

No, no. The 7.2 is already having the cancellation there. That's the net orders number. The 4-ish closings you are talking about, that's because sales were slower in Q4.

Okay. So we should see -- I mean, there is -- assuming you hit the 450 for February, that's an acceleration of almost 1 turn. So I guess that makes sense. Thank you for clarifying that.

Yes. We -- now they were in the business of getting monthly guidance, but we should see March closings at 6 to 7 per community per month.

Okay. All right. And then I guess my next question, if you're looking at those net orders, what percentage of those net orders are new leads as of 2023 versus people who may have had to cancel when rates spiked back in November and now you're getting them back into a home.

Yes. A very, very large percentage. I'd be very comfortable saying 90% are leads that have come in very recently, and we sell them within 30 days.

That's great. And then I guess the other question I had, I think you said that you guys bought 3 finished lot deals during 4Q. I guess, #1, what, if anything, is going to be the gross margin impact of that? I mean, it's only 3 communities. But -- and is there more opportunities now to buy some finished lot deals to make up for slower conditions in terms of getting your owned land developed?

Yes. Well, the gross margin will be a factor, and that's part of our guidance on gross margin based on historicals. We do plan on having more finished lot opportunities, which we forecasted a lower gross margin than if we're developing in the land and believe we should make the developer profit as well. Terrata is going to be a bigger percentage of our business, maybe have more opportunities at Terrata. We forecast a lower gross margin on our Terrata business. And it really is a question, Jay, of what's going to happen in the market. Interest rates spiked last week. We'll see what happens throughout the year. We'll see how challenging the market is. I believe based on what we're seeing, a lot of builders, particularly on the private side, are struggling right now.

They are committed to take down schedules, they probably don't like. They're renegotiating with developers. Their section sizes are probably too large. So that's why we really want to focus on clearing some of our inventory, creating some dry powder. We think there's going to be tremendous opportunities. And then we're also thinking about the business long term. The more challenging the market gets in 2023, the more opportunities that's going to create for LGI over the long term to buy more deals. If rates go back down the market gets better, not as many opportunities, but obviously, that's better in the short term.

Right. And then just one other [sorry, I] just want to sneak this one in. Could you talk again about gross margins and what the factors are for them to be lower than the historical averages this year? I know part of it is just resetting the base pricing, but maybe the top 3 things that are pushing the gross margins below the historical norms for '23?

Yes. I think the biggest thing is affordability, Jay, and seeing the price floor. We also have to deal with appraisals and what other builders are doing. I know it necessarily [hasn't flowed through everybody's] gross margin yet, but we believe most builders are pricing to normalized gross margins are below to clear some inventory. Our costs are still very much elevated. They came down from the peak. But if you compare our cost to build a house compared to where it was pre-pandemic, it is very much elevated 30% higher approximately from pre-pandemic. So that's a lot more than just standard inflation that we should see.

Our next question comes from the line of Alex Barron with Housing Research Center.

Yes. I wanted to ask about the -- I wanted to ask about the interest incurred versus expense. Is basically right now the idea that the amount of interest that's going through the cost of goods sold will remain similar to what it's been? Or is there a chance that some of the extra interest could come through the expense line below?

Yes. Great question, Alex. This is Charles. So we averaged about 110 basis points for the fourth quarter. So our interest costs incurred just with interest rates going up, have elevated. However, having said that, they're getting capitalized against the number of communities under development. So I think over time, that will tick up slightly, but it's going to take a couple of years as those projects are developed and brought online to work their way through the income statement. So I think we'll see is the guidance implies that it will be slightly up from where we're at today, but it will come in over a long period of time as those lots come through the income statement.

Okay. That makes sense. Very helpful. Also wanted to ask about your build time to what extent that's kind of come back to normal. If I recall, I think pre-pandemic, you guys were building houses and something like 63 days or some number like that. So I'm just curious to what extent your build time has gone back to normal because I guess that obviously makes the -- whatever your backlog is less relevant because you guys are able to kind of go from order to closing pretty quickly. So I was curious if you could help us out on that. And also, I'm not sure if you gave the starts number for the quarter or if I missed it.

Yes. This is Charles again. I think we saw our build times nationwide increase by 30 days last year. I would say that the shorter build times that you mentioned 60 days or so. There's a few markets where we can accomplish that, but it really depends on the area of the country. It's a pretty wide range. We're also -- our Terrata product will take a little bit longer build time than the traditional LGI product as well. But I would say build times are coming in slightly I would not say necessarily dramatically, but the way we're handling that is just managing starts in a way so that we can project our deliveries of our completed houses that may just be a little bit further out. So whether it's putting more permits in the queue to be ready to start and then we can adjust very quickly. So that is one thing that we've done historically very well is be able to adjust to conditions in a pretty quick time frame. And then fourth quarter starts were around 650, so 646 starts for the quarter.

Okay. So what's the total number of homes under construction then, whether they're sold or not sold?

Yes. So we had just the 3,300 total, which includes our information centers. So we had about 1,900 completed houses to end the quarter at about 1,300 in work in progress.

We have a follow-up from the line of Truman Patterson with Wolfe Research.

Just wanted to follow up on Alex's question regarding interest expense. Is there any way -- given the movement in short-term rates, is there an annual dollar amount that's actually getting capitalized or incurred in 2023, you could help us out with? And then could you just discuss capital allocation priorities in '23 between share buyback, debt reduction, reinvesting in the company?

Yes, sure, Truman. So I don't have an annual estimate in front of me, but it's going to vary since we manage the business through the revolving credit facility. So it's really going to be dependent on how much we have outstanding at any one point in time. We're running about just a little bit north of 6% right now on the revolving credit facility, and then we have the high-yield notes at 4%. And so that will -- if you assume in your balance sheet model kind of a similar level of debt, then you can kind of back into that way? And then can you repeat the second part of the question?

Just capital allocation priorities.

Yes. So great question. So similar to what we've talked about in the past, we obviously mentioned in our scripted comments that we're focused on bringing on our new communities. We mentioned our community count guidance for this year. But then we also mentioned we expect community count to increase in 2024 by 20% to 30% as well. So I think the primary focus is working through our lots that are currently under development, about 1/3 of our lots that are not already allocated to finished or to houses or currently under development. So that's the main priority.

We also, as Eric mentioned, want to make sure that we've got some dry powder ready to go to take advantage of finished lot opportunities and we're starting to see that as well. So those opportunities are likely to be most beneficial in places where development time line is taking a little bit longer or in some cases where we're gapping out in our submarkets. So ideally, the best opportunities are those that we can use those to fill in if our next community isn't coming for a little bit further out. We can take advantage of that finished lot opportunity to backfill not unlike what we used to do several years ago.

And then we have share repurchases as a consideration. I think our sense right now is that, that is more opportunistic as we continue to kind of focus on the liquidity and where we're currently allocating dollars to land development and acquisitions, but certainly opportunistic from that standpoint and maintaining our debt to capital ratio in the general area of 40% where we landed for the end of the year.

Okay. And then you all have reduced pricing estimation of 10% to 15% from peak levels. And I imagine with some mortgage rate buy-downs, you all might be able to reduce a monthly mortgage payment by, I don't know, 20% or greater rate from peak levels. So I'm hoping to understand across your -- either a specific metro or just kind of nationwide. Could you discuss the mortgage payment for one of your homes versus an equivalent rent payment because clearly, rents have been a little bit stickier, maybe a little bit of softening, but not to the same degree.

Yes. Truman, this is Eric. I mean it varies by community obviously, where the sales price is and the amount of incentives is community by community as well. But generally speaking, if we picked a standard community entry level across the country, one of the metrics we've been using is for a monthly payment that somebody has to qualify with their taxes and insurance and everything all in, kind of pre-pandemic, that number is about $1,800 a month, and you need to make about 5,400 a month to qualify for that mortgage, about 3x the payment.

At the peak, which would be about Q4 this past quarter, that number with prices still elevated and interest rates getting to [7%], that got up to about $2,800 a month, which meant you had to make $8,400 a month. So $5,400 to $8,400 is a big dollar amount. Interest rates spiked back up last week, but generally in the 6.5% range, where we've kind of been averaging 6.25% to 6.5% over the first 8 weeks of the year. We think about $2,400 a month apples-to-apples, so that's better. And that $400 a month decrease through mortgages and pricing of its peak, we believe has made a difference in our business. That is certainly higher than most people can rent a single-family for or an apartment, but that's always been the case, but that spread is probably more elevated. You've got some of the national [staffs] that you have access to, but it's more elevated than normal, the difference between renting and ownership.

At this time, I'm not showing any further questions. I would now like to turn the call back over to Eric Lipar for closing remarks.

Thank you, everyone, for participating on the call and for your interest in LGI Homes. We look forward to sharing our achievements throughout the year. Have a great day.

Ladies and gentlemen, thank you for your participating in today's conference. You may now disconnect.