Meritage Homes sold 2,139 new homes in the second quarter, according to the second-quarter results reported on July 26th, up 12% year over year. These sales generated $872.4 million in home closing revenue, up 9% year over year. Average home sales prices fell 3% in the quarter, but only as a byproduct of the builder’s intentional strategy of building more starter communities and entry-level homes.

Starter homes made up 44% of the builder’s total new home orders, up from 35% in the second quarter of 2017. Taken together, starter home orders drove the order backlog up by 6% to $1.53 billion at the end of the quarter. Of the quarter’s home closings, 55% were spec homes, up from 49% at this time last year and 41% in 2016.

The benefit of starter homes -- particularly specs -- is that they generally drive higher margins. They are built with less customization and generally with fewer floor plans than more upscale neighborhoods, which can lower the builder's construction expenses and lead to higher profitability. That's certainly been the case for Meritage, which once again saw its gross margins expand to 18.3%, up from 17.7% last year and 17.1% in the first quarter.

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