With the official kickoff to the 2010 spring selling season just days away, M/I Homes CEO Bob Schottenstein told analysts during an earnings call Wednesday that he had "reason to feel optimistic going into February."
Driving Schottenstein's rather confident outlook were both a strong quarterly performance, where new orders and backlog were up significantly as well as average sales price, and some encouraging early 2010 sales trends.
The company saw big improvements in year-over-year sales figures in October and November, with new orders for the month jumping 79% and 43%, respectively, Schottenstein said. And although December orders slipped 6% year over year, he noted traffic was up. He was further heartened by January's sales numbers, which were up 21% year over year.
Schottenstein noted that the January sales jump was particularly surprising given some of the severe weather that many markets in the Midwest and Mid-Atlantic regions had experienced. Normally inclement weather would have negatively affected sales for the month.
"One or two weekends were almost a whiteout," he said of conditions in the Midwest.
With indication that new-home demand was holding strong early into 1Q2010 thanks mainly to the extended home buyer tax credit, Schottenstein sounded positive with regard to management's sales strategy. Not only had the company's new value-oriented Eco Series made its way into nearly every division's product portfolio, but the management team had beefed up its spec production to roughly five specs per community, a move that Schottenstein also credited with improving absorption rates to 1.5 sales per community from 0.9 sales per community in 4Q2008.
Although Schottenstein noted that it was difficult to get new land deals to pencil, given management's desire for a 20% gross margin, absorptions of 2.5 homes a month, and a 20% return on investment, the company would open a number of new stores. Schottenstein said he expected to open at least 20 new communities in the year ahead, although with the close-out of older communities, the new openings would only result in a net increase in community count of roughly 5% by the end of the year. The company currently has 101 actively selling communities in its portfolio.
With senior management appearing confident in the company's ability to produce enough desirable product to meet home buyer demand in the near term, one housing analyst raised a question about the availability of home buyer financing, particularly given the FHA's new lending standards.
When it came to evaluating the effect of FHA's higher down payment requirements for less creditworthy buyers, those with credit scores below 580, Paul Rosen, CEO of M/I Financial, concluded that it would have "little or no effect" on the company's business.
"It's been almost impossible to do any loan with credit scores below 620," he said.
And any negative fallout from the reduced cap on seller contributions to closing costs from 6% to 3% of sales price also appeared negligible. "We don't think it'll have any effect on our ability to sell and close homes," Rosen added.