Good morning, my name Kyle. I will be your conference operator today, and I'd like to welcome everyone to the KB Home 2013 Third Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded and a live webcast is available on KB Home's website at kbhome.com. The company will make a presentation and then open the line for questions. [Operator Instructions] KB Home's discussion today may include forward-looking statements that reflect management's current views and expectations of market conditions, future events and the company's business performance. These statements are not guarantees of future results, and the company does not undertake any obligation to update them. Due to the number of factors outside of its control, including those identified in the SEC filings, the company's actual results could be materially different from those expressed and/or implied by the forward-looking statements. A reconciliation of non-GAAP measures referenced today to the most directly comparable GAAP measures can be found in the company's earning release issued earlier today and/or on the Investor Relations page of the company's website. I'll now turn the conference over to the company's Chief Executive Officer, Mr. Jeff Mezger. Sir, you may begin.

Thank you, Kyle, and good morning, everyone. Thank you for joining us today for a review of our fourth quarter and full year results. With me this morning are Jeff Kaminski, our Executive Vice President and Chief Financial Officer; Bill Hollinger, our Senior Vice President and Chief Accounting Officer; and Thad Johnson, our Vice President and Treasurer. I'd like to start today's call with a review of our results for 2013, a year in which we made significant progress, highlighted by our return to full-year profitability. I'll then review highlights of our fourth quarter and the ongoing actions we are taking to further enhance our results. Jeff Kaminski will provide a detailed look at our financials, after which, I will conclude with a few final comments about our expectations for 2014. We will then open the call to your questions. As we look back on 2013, we're pleased with our achievements. First and foremost, we restored profitability. Moreover, we were successful in driving results through execution on our 2 key strategic initiatives for the year, enhancing profitability per unit and accelerating top line growth. We've been sharing updates on these initiatives during our quarterly calls. And I am proud to say that the results of our actions are clearly reflected in our financial accomplishments. For the year, we reported net income of $40 million. Revenues grew by 34% to $2.1 billion. Our operating income was $92 million, an improvement of $112 million over 2012. We grew our net order value by 24%. We are entering the new year with a healthy backlog value of $682 million that carries a much higher gross profit per unit than a year ago. We invested more than $1.1 billion in land and development and at year end, owned and controlled over 61,000 lots, a…

Thank you, Jeff, and good morning. Our ongoing focus on repositioning our community and product mix as well as enhancing the execution of our business strategies led to improvements in the majority of our financial and operational metrics in the fourth quarter on both a sequential and year-over-year basis. We are committed to building on these favorable trends and continuing our earnings and revenue growth in fiscal 2014. We believe that the primary driver for our improved results has been the strategic targeting of our investments during the last few years towards land-constrained submarkets with strong economies and other attributes that appeal to higher-income, creditworthy customers who want larger homes and more options and upgrades. In continuing to open more new home communities in these areas and by balancing our sales pace and pricing, we have been able to drive increases in our average selling prices and housing gross profit margin over the past several quarters as the housing recovery has progressed. At the same time, we have streamlined and leveraged our overhead and improved our operating efficiencies, enhancing our profitability. The success we have achieved from these combined initiatives can be seen in our fourth quarter and full year performance. For the fourth quarter of 2013, our net income grew to $28 million or $0.31 per diluted share, representing a more than threefold improvement as compared to the prior year period. The gains to our bottom line resulted from a combination of higher revenues from higher average selling prices, continued expansion in our gross profit margin and an improved SG&A expense ratio. Fourth quarter total revenues of $618.5 million increased by over $40 million or 7% compared to the same period of 2012 with year-over-year growth ranging from 22% to 43% in the Southwest, Central and Southeast regions, partially…

Thanks, Jeff. Before sharing my concluding comments, I would like to take a moment and recognize the hard work and commitment of all KB Home employees who enable us to deliver the profitable results that will drive our business forward. More importantly, I also want to thank our more than 7,000 new homeowners who will be enjoying a brand-new KB Homes this holiday season. As I have shared, 2013 was a good year. Looking ahead, we have the fundamentals in place for an even better year in 2014. Our strategy is working and I am confident that the expansion of our business will continue, driven by aggressive land investment and community development. We have the backlog in place to start the year with momentum. And with the substantial number of community openings on the horizon, we expect to grow revenue while continuing to enhance margins. While we continue to balance price and pace to optimize the returns for each community, the real profit driver going forward will be increasing community count. Growing our number of opened communities remains a top priority for 2014. As I said earlier, we have substantial pipeline of communities already acquired that are working through the process and for the grand opening. While some communities are taking longer than planned to get opened, we anticipate that our community count will grow moderately in the first quarter and build momentum from this level throughout the year. We expect to grand open considerably more communities in 2014 than we did this past year. While our community count at any one time is a function of the pace of grand openings and closeouts, we anticipate that our community count will be up in the range of 10% to 20% by the end of the year, with most of the…

[Operator Instructions] Your first question comes from the line of Michael Rehaut from JPMorgan. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: The first question I had was on the gross margins. You continue to demonstrate real solid improvement sequentially and you continue to point to that improved mix and even further ASP gains in 2014 as the community count continues to bear out your investment there. As you look backwards, historically, you were able to do gross margins in mid-cycle, past cycle in the low 20s. Can you give us a sense assuming that you're going to get more of this moderate home price gains that you referenced over the next couple of years, more moderate pace than previously. Do you have a sense of when perhaps you could get back to that low-20s type margin and any guidance in terms of what we could expect for '14?

Sure, Mike, I can cover that. And you're right, on the gains, we've enjoyed some nice gains. I mean, if you look all the way back to the beginning of 2012, we were in the low double digits. By the end of the year, we were just touching a little over 15%. I'm going to talk here about adjusted gross margins, so it takes out a lot of the noise in the various quarters. I also want to point out that I'm not adding back capitalized interest. These numbers are, including the amortization of capitalized interest in the numbers. Going into the first quarter, a little over 15%; second quarter, a little over 18%; third quarter, a little over 19%; and then almost 20% now in the fourth quarter. We're pleased with the result. We're not, say -- I would say, pleased with the absolute end result at this point. We still have significant focus on further improvements and, admittedly, the improvements and the improvement trend will likely moderate a bit as we saw this quarter. We were up only 50 basis points this quarter versus the third quarter than prior. But we're still striving to achieve, as you described, the normalized margin in that low to mid-20s area. When -- and as we're moving in to 2014, I think I'll talk first a little bit about the first quarter. We certainly expect the first quarter to reflect improvement on a year-over-year basis. But we are forecasting perhaps a slight decline versus our current fourth quarter rate. And it's really due to 2 factors. One, the typical loss and leverage on fixed cost that we include in SG&A due to seasonally lower Q1 revenues. And secondly, we are seeing a slight mix shift towards deliveries out of some of our…

Sure. I think I'll start with the margin question first. What we're seeing -- what I'm seeing right now is in your range, 50 to 100 bps of impact, I mean just from the leverage issue and then there's some additional impact that we think we may see from the shift to the lower margin communities. That needs to play out and we obviously need to see what we deliver out of the backlog. But I think that would be incremental on top of the 50 to 100 basis points on the leverage issue.

And, Mike, a couple of comments I can add on to that. We should -- I don't know about the percentage because we aren't sure of that, but our dollars of gross margin are higher in backlog today. And what I keep trying to point out is as our ASP moves up even though the gross margin percentage doesn't necessarily move up. With it, your dollars of margin move up and helps you on the SG&A side. Looking forward, the guidance we gave on ASP is not assuming any inflation. That's just the rotation of our product mix. And a lot of our margin lift has been, or the majority of it, I would say, is not the market lift, it's what we've done in rotating communities and changing product and all the things that I've shared over the years that we leverage in our business model. So we're definitely on the quest to continue to pursue our normalized gross margins. And any given quarter, it'll move around some because mix can still drive it in our scale. As our scale gets bigger and our new products continue to open, I think you'll see us continue to advance toward our stated goal even if prices stay where they are today. Because we're focused on how do we grow margin without growing price. Back to water intrusion, I can say some high-level comments and then kick it back to Jeff. First and foremost in this situation, we're putting the customer first. So it's important for us to take care of our customer, and we are. I have various senior management involved in this deal, and have for quite some time. We continue to keep our arms around it. We like the trend. We'll see out what the future brings. But along the way, as I've shared on past calls, we're going to vigorously go after collection from contractors if they perform work that was substandard and created the problem. So it's a frustrating situation for me. But it's one that we'll continue to deal with, put our customers first and get it behind us.

Right. And relating to the numbers, there are a lot of moving parts in this thing. We're trying to estimate cost on remaining homes to be repaired, as well as estimating how many potential future claims we'll get, and then the severity of the problems out of those future claims. So it's a very difficult situation to try to estimate. And we are monitoring it very closely. We're making adjustments as we need to, as facts become known. We're using the most up-to-date information we have in order to book the accruals at the end of each quarter. And I do believe right now, our understanding of the situation and ability to estimate its impact has continued to improve, although there are still a lot of uncertainty around it. We're going to continue to manage and monitor it, analyze the situation. We'll continue to update our repair cost estimates as warranted, like I've mentioned in prepared remarks. And we'll see where it goes. Like Jeff said, there is a lot of focus and resource on it as a company. We don't expect to complete all of the repairs until at least the end of 2014, as disclosed in our filings. So we do have some time to continue to deal with the situation. But just like we try to do every quarter, we try to peg it as best we know of what that future exposure is and book the appropriate accrual.

Your next question comes from the line of Dan Oppenheim from Credit Suisse. Daniel Oppenheim - Crédit Suisse AG, Research Division: I was wondering, I guess, just to start off with the question on margins. You talked about some of the lower margin communities impacting the first quarter. Is it really communities or is it sort of a regional issue? I'm just trying to think about communities as they -- some of delays and as they're coming online in the first quarter. Is that likely to have some impact still in the second quarter more sort of the mix towards the central and southeast as opposed to the west?

Yes. Dan, I don't think it'll be as much on regional shifts as more communities. I mean, when I look at, for example, our west region, the forecast right now on the west region in the first quarter is pretty similar to where we're at today. But within the west region, there's -- obviously, we have 4 divisions in the west region. And there's some divisional differences, in particular community differences within that. And you are right in saying as some of those new communities come online that we had anticipated having opened in the fourth quarter and now, like I said, are either already opened or will open sometime during the quarter. That will affect, obviously, that delivery mix slightly in the first quarter as to we need to get the communities up and running, make sales and build and deliver homes, which will likely happen towards either the end of the quarter now or more into the second quarter. So it's more of a function, like I said during the prior response, more a function of community mix. Daniel Oppenheim - Crédit Suisse AG, Research Division: Okay. And then I was wondering about -- as you talked about the community growth coming, but likely in the back half of the year, how are you thinking about that sort of across the different regions?

Yes. Well, I guess, first of all, starting with the west region, that's definitely following the company trend as a back-half weighted increase. A couple of the other regions, we're seeing a little more growth earlier in the year. But overall, we'll be comping to the prior year. The comps will be pretty strong starting right in Q1 because we're already at 191 communities. And at the end of last year, as a company, we were only at 171 communities. So we're already ahead of the end of the first quarter of 2013. And we're intending to grow from here. It is difficult, as we often point out on these conference calls, to actually forecast net communities due to just speed of closeouts and sales impacts quite a bit, and then some of the uncertainty around openings and timing of openings. But right now, that estimate of 10% to 20% by the end of the year up on the 191, I think, is best as we could see at this moment.

And, Dan, if I could add a couple of comments, and you can relate to this since California is your home state now. It's not just the number. It's the quality of what's opening. I can give you a couple of examples down here in SoCal. We're opening, in January, in 2 communities in Playa Vista, which is arguably the most land-constrained dynamic housing market in California, possibly even in the whole country. And we're excited and that the interest lists are strong. We've already got pre-approval. That's going to be an incredibly successful community. And one community there could offset 5 communities in a much lower priced city somewhere else in our system. Up in the Bay Area, we have a large -- we call it a mini master plan in San Jose a 300-lot community with 3 product lines that's in the process of opening right now, that initial response is great, prices are much higher than pro forma. We have a long list of reservations. And that's why I made the comment in my prepared remarks on it's not just the number, it's the size of the communities. Because over the last couple of years in our coastal business, we were picking off a 30 lot distressed deal here, a 40 or 50 lot development deal there. And you're in and out of, I mean, the same year. Now with the scale that we're creating in these communities like the San Jose example, they have a longer shelf life. And that'll be around, and it'll help drive a much better business. And having said that, we expect all 4 regions to grow community count through the year. And I think we have a nice growth engine going forward.

Your next question comes from the line of Bob Wetenhall from RBC Capital Markets.

I just wanted to ask you, what's going on with cancellation rates? And going into '14, how should we be thinking about the conversion rate of backlog?

Well, yes, on the can rates, we disclosed in the release the numbers. I think there's a couple of things important for me on that one. The first is, what I like to do is look at -- I look at the net sales, and irregardless of the cancellation rate, that's sort of the number that we really focus on. In our case, you see a little bit of difference in the cancellation rate as a percentage of our growth sales versus the cancellation rate as a percentage of our backlog. And it's kind of interesting this year, as a percent of backlog, our can rate really hasn't moved much as we've gone through the year. It was 30% in the first quarter, 29% in the second quarter, 27% in the third quarter and 29% in the fourth quarter. So it's been very consistent. As a percentage of growth, it's moved around more. And you get that kind of relationship when you grow sales are bearing as much as we do in this industry on a seasonal basis. So that's kind of how we look at it. I often say, "Look, we look at can rate as an indicator." I mean, when we look at hotspots within the company, if we have a division where we see the can rates spiking up a little bit, we try to dig in and see what's going on and see what the drivers are. But generally, it's a net sales focus for us.

And conversion rate, just a little bit of housekeeping, how do you like us to think about conversion rates next year? And final question, any thoughts on land spend? It was $1.1 billion. It seems like you got a good supply, good visibility for the next 2 years. What should we be thinking about 2014?

On the conversion rate question, what we've been running is, I'd say give or take, 60% for the last 2 years. It spikes up a little bit in the fourth quarter as we're closing out the year. I think this year, we did 67%; last year, we did 68%. But outside of those 2 quarters, that 60% range plus or minus is probably a good number. On the land spend, as Jeff indicated, we're building off a $1.1 billion -- actually, close to $1.2 billion a year. I think it was $1.140 billion in total as we go into next year. And we like the growth that's provided in our lot count. It's given us a really nice boost to what we see in community openings as we move forward. And we're going to really look at market conditions as we move through the first quarter on opportunities, I think very importantly with land opportunities. So we're still staying very disciplined in our land investment approach. As those opportunities come in, we'll aggressively invest, as we have been. If we don't see the right opportunities at the right returns and margins, then we'll pull back a bit. So at this point, we're not really giving number guidance on the spend in '14. But directionally, we intend to continue with the aggressive land investments and development that we've started and continue to build our community count.

Your next question comes from the line of Alan Ratner from Zelman & Associates. Alan Ratner - Zelman & Associates, LLC: Jeff, I was hoping to ask another question on the regional mix because when I look at your dollar backlog, California right now is about 30%. And a year ago, that figure was 40%. And that region has consistently been generating margins, 500 to 1,000 basis points above your other regions. So when I hear your comments about improving margins in '14, it would assume that you would, here, expect to see some pretty significant improvement in the other regions or maybe see the order declines that we've witnessed over the past few quarters in California reversing to gains throughout the year. So I'm just curious if you could add some more color to that.

Alan, for starters, the GAAP in percentage margins closed a bunch from that range. That's your raise, and I think that was true in the past. But our other regions' margins are improving. And it's not that big a GAAP in percent. The dollars are still huge because of the ASP. And within backlog, it will move around a little bit from quarter-to-quarter based on what I walked through in California. And outside of California, it's been fairly, fairly consistent as we go through openings and closings and the rhythm of building our backlog. So as we've shared for a long time, our revenue out of California has typically been close to half of our business. I think you'll see that go down a little bit as we strategically grow outside of California, with California growing along the way. And as already shared on this call, it's our expectation, all 4 regions are going to grow at the top line and the deliveries for the year. So we're positioned to grow. And it's the -- been an odd dynamic this quarter with openings and closings in California that we can quickly shore up and build as we get into '14 here. You'll see California continue to be the weighted business for us. Alan Ratner - Zelman & Associates, LLC: So I mean, we'll get the numbers in the K, but I would imagine that, and we should expect to see that GAAP shrinking between California and the other regions because the range I gave was, at least, was through the first 3 quarters of '13.

Yes, that's right. And I think the other important thing is the community openings. As Jeff was referencing, we're very excited about some of the new community openings that we have coming on stream in the first half of 2014 out of the state. A large result from the land investment that we've put into place in '13 as we're getting those communities developed and opened, obviously, it takes longer to do that in California than it does in other parts of the country. And we're very excited about some of those new openings that we have coming online.

Part of the other reason I like, I can share on why I think you'll see the GAAP close a bit, if you think of the investment cycle we've been through a couple of years ago, we were only investing in coastal California and desirable areas in Texas. And as markets recovered and we put the open for business sign-up at our investment committee around the system, we're now investing in higher price points in the cities we're in. And a great example, Denver, where our business is performing very well and growing at a nice pace. We've got communities opening where the ASP is in California, but it's not 180,000 anymore. It'll be 300,000, 350,000, 400,000 with very healthy margins. And you'll see that evolve around the system this year as all the investing we've started to do in '12, and late '12 and through '13, will come to market at higher price points in all of our markets. Alan Ratner - Zelman & Associates, LLC: That's very helpful. And if I could just change gears for a second. I'm curious if you've had any conversations with the folks in Nationstar about some of the recent announcement of changes in the mortgage industry, obviously, the lower FHA loan limits, as well as the increased GSE loan level pricing adjustments. And curious if you've had any early take on what impact that might have on your buyer?

We definitely had discussions, and definitely, as an industry, been discussing things in Washington as well. Then each one of these little changes on its own. The housing industry absorbs, but they start to add up. And we expect that the FHA loan limits to drop to the 600s on the coast. And no problem with that. Okay, fine, let's move on. But some of the inland cities, like a Phoenix or a Vegas, took a pretty significant drop as well. And that's where we were surprised, at the level they dropped to. As we got into our business, we found that with the mortgage insurance changes that had been ongoing at FHA, payments were actually much higher than comparable conventional product even when a conventional product's at a higher rate. The mortgage insurance has been moving up for the last couple of years. And our FHA book of business has been going down along the way because the customer was opting for a 5% conventional loan at a higher rate, but a lower payment. So I think the impact will be somewhat muted on new home construction of that specific item. These g-fee change is going to raise rates over time. The dust is still settling on this announcement. And it will -- it's a risk-based g-fee now. So the lower the FICO, the higher the rate will be. And it's a government's effort to try to get more private money into the mortgage world so they can withdraw a little bit. And what our industry keeps pushing for is let's do things at a slow pace to make sure there's not some unintended consequence. In order of magnitude, if you're a 750 FICO, this g-fee is 1/8 of a percentage point. So it's not a big deal. You get down to a 650 or a 670 or 80, which historically is a good buyer, and your interest rate could go up 1%. So there's a new head of FHFA coming in. They'll have the ability to go adjust and monitor things. And we're trying to get our arms around those 2, what's the impact. And also, QM and QR are finally getting results. So there's a lot of swirl in the mortgage markets that we're trying to get our arms around and understand, but none of it so far has created a tailwind for the consumer. None of them on their own are significant, but each little one over time could be. And that's part of our -- we're being watchful right now on the trends and how this develops over the next 60 days.

Your next question comes from the line of the Stephen Kim from Barclays.

It's actually John filling in for Steve today. I just wanted to touch on cost. Land aside, what have you been seeing as far as materials and labor go? What we're hearing is things are generally up about 10% to 12%. But if you could weigh in there, that'd be helpful.

Yes. I'm not sure we could compare some point as the 10% to 12% of prior year or prior quarter.

Year ago.

Year ago.

It's industry, not us.

Right. No, that's -- just trying to get a base in that. What we've seen more recently in the fourth quarter is actually more of a net flattening. We have had some price inflation in the fourth quarter between materials and labor, but it's been more of an offset. Lumbers come down a bit. It's offset some of the material or some of the labor increases that we've seen. And the -- from that point of view, it did not have as much impact on us in the fourth quarter as prior quarters. We're concerned obviously going into next year, as we always are, about all of our costs of what could happen, particularly in the spring on the labor cost side. But we're mindful of that, and we have a lot of resources focused on it from the purchasing side. We've been doing a lot with our supply base and really very actively working to develop additional suppliers in certain markets and to enhance the position of certain -- of our traditional suppliers across the network. And really, just very cognizant that this could continue to have impacts on us as we get into next year, and really looking to offset it as we go.

Now on the price side, you've indicated that mix alone, you think prices will be up mid to high-single digits. Kind of what inning are we at in the story of your product and market mix shift? Because last year, you meaningfully exceeded the industry, and you've had another year of mid to high-single digits in excess of inflation and broad home price appreciation. Maybe if you can help us there?

Yes, let me start with what we said, and what we've been saying for quite a few quarters on our ASP. The ASP growth that we've seen as a company does not reflect just pure prices, as you kind of implied there. We don't expect, I don't expect market prices to go up 5% to 10%. It'd be nice if it does. We're not planning for it. But we do expect our ASP to increase in that range. And the reason for that is continued strategic shifts for the company, continued new community openings at higher price points, larger square footage of deliveries and all the other factors that we talked about in the past that's really driving our ASP outperformance versus the industry. So it's not really just a pure price game. And I wanted to kind of clarify that before -- I don't know, Jeff, do you want to make any comments on the general pricing that you expect in the marketplace?

We're not seeing anything in the markets that suggest there's a risk of deflation right now. While there's been a pause, inventory levels are still low. The economy is getting better. So we don't think there's a lot of downside pressure on pricing. It's just that the upside pressure has eased right now, which I observed is actually a healthy thing. And what's going on with our company, as you look at our scale growing and where we were and where we are, you can move price pretty quickly by opening a handful of communities in coastal California and close out a handful in Houston. So part of our price was just simply that, the regional mix. But strategically, within the State of California, our investment tilted to the coast. And higher demand, land constrain, hard to get deals. When you do, they work extremely well. And they're at significantly higher prices. So within California, that shift in the strategy drove a much higher price. As '13 evolved, the recovering California moved inland, which we shared, and we started investing more aggressively in the more desirable locations inland in California. And as the economy recovers further, we'll grow our coastal business, but the unit growth will come more from inland that it will coastal. It wouldn't surprise me at some point. We'll be a larger business, but our ASP in California could actually stop going up because the whole state has recovered and the more moderate price markets become a much bigger part of our business. You're seeing some of that going on right now, and that we're investing in the coast. And we're going to grow our coastal business. But we invested a lot inland. That's going to come online later here in '13 -- or '14, I'm sorry. And when -- as I say all that, it's taken us about, if you look in California, there's not a lot of lots hanging around in solid locations. So you're either buying the partial-developed, and those are mostly gone, or you're having to entitle. And when you get into entitlement and development, it's taken us 18, 24 months depending on the location to bring the lots to market. So there's a delay that's extended a little because of some of the staffing levels in the government agencies. But it wouldn't surprise me if at some point in time, our price goes down in California because a bigger chunk -- our margins will be great business and our business will be great and -- but in the short run, it's been this mix shift to the coast that we invested in a couple of years ago.

Jeff, that's a really interesting point you make on California. Just to maybe take that one step further. As we see more broadly speaking outside of California, more of the traditional first-time homebuyer coming back into the market, do you think that your company-wide mix shift would maybe dial back a bit and you could ultimately in years out see negative price, not because of macro environment, but just because your mix has to shift to where the market is in these years out?

Well, you used the right term. We'll shift to where the market is in our business model. We've shared back in '06, we were about 30% first time. We were heavily weighted to move up. And then through the downturn, we shifted the other way. And now, we're pretty much 50-50, I guess, in range between first time and move up. And that's because that's where the demand has gone to. If first-time buyers, their mortgage situation improves so they can get a loan, and that demand opens up, that'll be a beautiful thing because it will really trigger a solid housing recovery across the nation. And it's a sweet spot for our company. And what you'll see happen is we will open up more business to the lower-price first-time buyer. They'll be at similar, if not higher, margin percentages. And you'll turn faster because there's a bigger buying pool. So that it doesn't mean where we are today would shrink. It means you'll just offset it by a bigger business with another segment. And as years unfold, we'll continue to migrate to where the demand is. That's one of the strengths of our business model and the adaptability we have.

Your next question comes from the line of Mike Roxland from Bank of America.

Just quickly, can we talk about the vintage of land flowing through the P&L currently? And when you expect land, the purchase, whether it'd be over the last 12, 18, 24 months, to begin flowing through the P&L? Obviously, some of it's hitting now, but how should we think about how the land purchase that you made over the last 1.5 years or 2 years hits the P&L?

Well, yes, I'll go back to the -- to some of the prepared remarks on that one. That was one of the reasons why I went through, Mike, some of the detail [ph] I did on the communities. In the last 2 years, like I'd mentioned, we closed out of about 65% of the communities that were opened at the end of 2011. So by default, almost all the -- other than 35%, that same percentage are all recent land acquisitions. So the vintage in land in the current portfolio is actually fairly recent. And we're still working through some of the larger land positions that we had in place, let's say, in communities opened at the end of '11. But obviously, the vast majority now is more recent land.

Got it. So then given rising land costs and the fact that you've aggressively acquired land in '13 and will be opportunistic in '14, how should we think about how you plan getting back to low 20s gross margin on a normalized basis given -- probably given the fact that you're dealing with higher land cost that will continue to flow through the P&L?

The land cost is always going to flow with the market in normal times, whatever that may be qualified. But in normal times, you'll get a couple points for margin coming out of a community. And you'll go into it at whatever margin you underwrote to. Typically, as prices go up, all it does is cover cost that goes up. And you get your margin improvement through execution or changing your product. And that's why we keep sharing, while we benefited from some price, and we always will opportunistically take it, we don't count on it. And we think we can get to our historical margin levels again. And we're marching toward it through running a better business. You don't need the market lift at that time. So there's -- you're only going to build the homes if you can get a return. And if the cost of build goes up, you factor that in and you'll invest in that location if you can get to your margin. And you pick it up in opportunities like lot premiums and elevation premiums and our studios and the efficiencies of scale. There's a lot of different things we can do to get to our margin without having to bank on price.

Your final question will come from David Goldberg from UBS.

I wanted to actually take a step back here and go back to Bob's question on the cancellation rate. And I appreciate the color about the variability of sales in the quarter, but if you look at the cancellations as a percent of backlog, it's actually been pretty consistent for some time. And what I'm trying to get an idea of is as you guys move forward to Home Community Mortgage and the JV, would you expect cancellation rates to come down in the business? In other words, is the prescreening kind of thing, where maybe a little bit more aggressive prescreening, you're not going to have as many kind of cancellations. And I know they tend to be earlier in the process. Or is that kind of the right level for you guys in terms of the business model?

David, let me make a few comments because you went to a great topic. And because you have followed us for some time, you understand that we have really 2 different can rates. One is before start and one is after start. And if you think about it, if someone is told they're approved, they final it to Studio. And they have now released and they're watching their own customed home get built. Your can rate drops significantly. And there's many divisions where post-start, the can rate's single digit. And their can rate will be from homes that haven't been started yet and haven't made it through the screening process. Having said that, our capture rate right now at Nationstar, right around 60%, I'd say. Their can rate or, let me say, their predictability after an approval is significantly higher than the other lenders who will give us a letter that says they're approved, go ahead and start. And then later on, they'll say, "Wait a minute, not so fast." So we do think that our can rate will moderate some as capture rate elevates through Home Community Mortgage. But over the years, my hunch will be our can rate will be in the range, I'd say, settle down probably around 25%. It's always been that way since we rolled out this business model. It may go down a little. But as Jeff said, we focus more on the net sales.

Sure. And that's very helpful. The other question I had was kind of more of a general question with the land market. I think, during the call, you've done a great job on touching on some of the potential hurdles that we faced, then also some of the upside opportunities. But are you finding that as some of these hurdles are coming to light in land markets that have been more aggressive early in the year when prices were going up a lot, have you found the behavior of other builders has changed a little bit? In other words, here we are looking at a mortgage market that's less uncertain. We have the FHFA, the g-fees. We had the FHA loan limit changes. We potentially have higher rates in caper [ph]. And all this stuff's kind of going on along with all the other hurdles that we face in the market, are you finding that to being reflective in buyer behavior in terms of the land market? Or is everyone still fairly aggressive to go out and buy a lot?

Well, I think we're all aggressive to go buy lots in the right locations at the right prices. I think the builders have stayed fairly disciplined. And I can speak for KB. There's been many deals where there were 2 or 3 builders bid on a piece. We were not the high bid. We lose the bid. We are not going to chase it. And then somebody will try to re-trade the deal before it closes. And the seller will come right back to us at a lower price than we bid. And we do that all the time because we're going to stay disciplined to the price points, the returns and the product strategies that we follow. And I would say for the most part, the public builders, in particular, stand pretty disciplined in that regard. Having said that, I also think that right now the land markets have softened a little bit. They're nowhere near as strong as they were back in May, June or July. And that's part of why I said it's healthy for pricing to take a pause and let the market just settle out because it was running off pretty good back in the spring.

Ladies and gentlemen, this concludes today's question-and-answer session. I'd now like to turn the call over to Mr. Jeff Mezger for closing remarks. Please go ahead, sir.

Thanks, Kyle. And thank you, everyone, for joining us here today. I hope you all have a wonderful holiday season. And we look forward to sharing our progress as 2014 unfolds. Have a great day. Thank you.

This concludes today's conference call. You may now disconnect.