Tri Pointe Homes delivered record levels of quarterly home sales revenue at $1.5 billion during the builder’s fiscal fourth quarter.

The strong quarter helped Tri Pointe achieve full-year home sales revenue of $4.3 billion in 2022, a 9% increase compared with 2021, and significant growth in both pre-tax income and diluted earnings per share compared with the prior full-year period.

CEO Doug Bauer said on the company’s earnings call that while many macro factors—including inflation, Federal Reserve rate hikes, and mortgage rate increases—were out of the builder’s control, Tri Pointe implemented “strategies to counter these external challenges.”

“Our aim is to optimize our business to current market conditions while taking advantage of our strong land pipeline to grow volume over time,” Bauer said. “We have initiatives in place to improve absorption, realign our cost structure, and maximize profitability and our return on equity.”

Net New-Home Orders and Absorption Pace
Net new-home orders decreased 69% on a year-over-year basis to 444 in the fiscal fourth quarter for Tri Pointe. For the full 2022 fiscal year, net new-home orders decreased 31% to 4,377.

In the fourth quarter, net new-home orders per average selling community decreased by 74% year over year to 3.2 orders (1.1 per community per month) compared with 12.9 orders (4.3 per community per month) in the fourth quarter of 2021. In response, Bauer said Tri Pointe analyzed its pricing and product offerings in existing and future communities to help drive orders in 2023.

Chief marketing officer Linda Mamet said incentives accounted for 6.2% of total price in the fourth quarter, an increase from 5% in the third quarter. In the first quarter to date, incentives have been consistent at 6.1%, according to Mamet.

“We have adjusted price on a community-by-community basis to meet the needs of today’s buyers through a combination of base price decreases, lot premium adjustments, and mortgage-related incentives,” Bauer said. “As a result of these efforts, we have adjusted net pricing down 10% to 15% on average from the peak pricing of early 2022.”

In addition to price, Bauer said Tri Pointe reevaluated its community designs and product offerings, including lowering square footages of homes and “simplifying our products to provide a more attainable price point.” The result of the pricing and product adjustments have resulted in positive changes in net new-home orders in January and February for the builder.

“For the month of January, net orders were 421 on an absorption pace of 3.1 per community per month, which was a significant increase sequentially from December, with net orders of 121 or 1.0 per community per month,” Bauer said. “To date, in February we have seen similar encouraging results of [net orders of] approximately 4.0 per community per month. The combination of price discovery and mortgage incentives have given us the tools to get absorption.”

Cancellations for Tri Pointe remained elevated at 42% in the fourth quarter, significantly higher than 9% in the fourth quarter of 2021. However, chief financial officer Glenn Keeler said as a result of improved orders and backlog buyer stability, cancellations have “returned to more normal levels” between 10% and 15% in the first quarter.

Cost Savings and Cycle Times
Bauer said another key area of focus for the company is driving cost savings, with a goal of a 10% to 20% reduction in costs for all projects by the end of 2023. However, due to “sticky labor constraints and supply challenges,” Bauer said the builder is not likely to fully realize cost savings relief until late 2023 or early 2024. He added the company has “revised” staffing levels in construction and sales to help support its cost-savings goal, resulting in approximately $15 million in annualized savings.

Tri Pointe also is focused on improving cycle times in 2023 to improve inventory turns and increase delivery volume. Bauer said the builder hopes to reduce cycle times by four to six weeks on average by the end of the 2023 calendar year.

“We will achieve our goal by continuing to work with trade partners and creating efficiencies in the construction process through more aligned and phased building in select markets, which enables us to deliver a consistent level of spec starts,” Bauer said. “In addition, we have simplified our schedule templates and expanded our trade partner base, and, as a result, we are experiencing some early success.”

Spec homes represented 60% to 65% of Tri Pointe’s total starts in 2022, a mix that will likely remain consistent for the builder through 2023.

“Our company has positioned more of our product offering at the entry-level premium/first move-up. That buyer profile definitely would like to have a home in the near term, 60 to 120 days,” Bauer said. “You’re going to see specs as a percentage of our starts at about 65% going forward. The consumer definitely would like to lock in a rate and find something sooner rather than later.”