I’m not sure why anyone should expect that they will continue to have (or need) 6.1 closings per community. You guys are losing track of their expansion. For example, in Texas they were selling homes at $165,000 or something like that, and selling high numbers. In Seattle they are selling them at $375,000, and presumably one closing will not only bring more than double the revenue but probably triple the profit. But there’s no way they will sell six $375,000 houses per community. Those communities will probably be happy with selling three. And they are building higher price communities even in the Houston area, according to a recent press release. Here’s a link to the website: http://www.lgihomes.com/community.cfm?id=magnoliareserve
I may be completely wrong, but I think fixating on number of closings instead of thinking about total revenue coming in, and about earnings, is very rigid thinking.
Saul,
You made some good points about the higher priced homes. It’s interesting because it a shift or pivot in their target demographic. Previously, they were trying to sell to apartment renters making the argument that the renter can lower his monthly housing expenses by buying instead of renting. The higher the home price, the more likely the buyer will be upgrading from a lower priced home (i.e. not a first time homeowner).
I went through putting together the model to see if it could be realistic for LGIH to hit their 4700 guidance in 2017. Yes, the model is pretty simply and there are some assumptions in it. However, the 6 homes sold per community has been stable now for 3 years. The vast majority of the homes will still be in Texas and other markets that are much lower priced than Seattle. Therefore, I think that the AVERAGE of 6 homes per ASC can still be applied and result in a pretty accurate picture of what LGIH might achieve in 2017 even if some communities sell fewer homes. The main thing I tried to test was whether it is realistic for LGIH to achieve 4700. It may not be that important in the big picture (as Saul has pointed out with respect to revenue and profit) but there will be a perception that growth is slowing if housing unit numbers sold are no longer growing fast. I have convinced myself that things are not as bad for LGIH as some people fear.
Chris