Welcome to Taylor Morrison’s Second Quarter 2016 Earnings Conference Call. My name is Vanessa, and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode, and later we will conduct a question-and-answer session. Please note that this conference is being recorded. I would now turn the call over to Mr. Jason Lenderman, Vice President, Investor Relations and Treasury. You may begin.

Thank you, Vanessa, and welcome everyone to Taylor Morrison’s second quarter 2016 earnings conference call. With me today are Sheryl Palmer, President and Chief Executive Officer; and Dave Cone, Executive Vice President and Chief Financial Officer. Sheryl will begin the call with an overview of our business performance and our strategic priorities. Dave will take you through a financial review of our results along with our guidance for the next quarter and for the full year. Then, Sheryl will conclude with the outlook for the business after which we will be happy to take your questions. Before I turn the call over to Sheryl, let me remind you that today’s call, including the question-and-answer session, includes forward-looking statements that are subject to the Safe Harbor statement for forward-looking information that you will find in today’s news release. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the Securities and Exchange Commission and we do not undertake any obligation to update our forward-looking statements. Now, let me turn the call over to Sheryl Palmer.

Thank you, Jason, and good morning, everyone. We appreciate you joining us today as we share our results for the second quarter of 2016. I’d like to start by providing an enormous and heartfelt thank you to the Taylor Morrison teams for their efforts day-in and day-out to help us achieve our strong performance. It’s because of these efforts that we met or exceeded all of our quarterly guidance, and I believe our results are a testament to the passion and dedication of our people. Our ability to perform is anchored by a sound strategic foundation coupled with a desire to evolve and continuously improve. These tenants are critical in enabling consistent performance as sometimes challenging local, national, and international events influence the pace of play within the housing recovery. We stand firm in our belief that the homebuilding industry is in the midst of a sustained and measured recovery, and that the sector and more notably Taylor Morrison is well positioned for continued growth and efficiency through the maturation of the cycle. Much of our belief is bolstered by demographic tailwinds coming in the form of household formations for millennials and boomers attaining new life stage milestones. New production starts continue to track below historic trends and are not keeping pace with household formations, and we continue to see indicators pointing to healthy demand fundamentals in most of our markets. Months of supply continues at somewhat constrained levels with both new and existing homes at or around five months, which is near similar levels as this time last year. Other metrics such as starts and permits continue to produce positive trajectories and a healthy year-over-year comparison. As we evaluate these metrics, they lend credence to the theory of a shallow sloped recovery. And as we all know, cycles are…

Thanks, Sheryl, and hello everyone. For the second quarter, net income was 45.4 million and $0.37 in earnings per share. Please note that during the second quarter of last year, we did incur an expense related to the early extinguishment of debt for the redemption of our 2020 notes. The total amount for that transaction was 33.3 million or 20.7 million on a tax effective basis. When adjusting for that expense, the year-over-year growth in net income was 14% and 12% for EPS. Home closings gross margin, including capitalized interest, was 18.1% which was ahead of our expectations due to mix and better-than-expected margins on our finished spec inventory that we sold and closed during the quarter. Relative to the second quarter last year, the year-over-year margin decline was primarily due to higher land residuals while construction costs were neutral. This was partially offset by lower capitalized interest per unit this quarter due to our decision to partially pay down and refinance the remaining balance of our 7.0075% notes to take advantage of lower rates last year. Moving to mortgage operations, we generated 13.5 million of revenue during the quarter representing a 37% increase over the prior year. Gross profit was 5.3 million while our capture rate increased by 300 basis points year-over-year coming in at 80%. SG&A as a percentage of home closings revenue came in at 11%. As we have discussed previously, we anticipate a deleveraging SG&A in the first half of the year as we anniversary investments back into the business related to people and systems, as well as integration costs in support of our acquisitions. In fact, the work we are doing to generate strong efficiencies should allow us the opportunity for further leverage for years to come. Our earnings before income taxes totaled 67.8 million…

Thank you, Dave. I’d like to take a moment to touch on a few of our markets across the country and provide some color on what we're saying in the field. I’ll start with Phoenix, which continues to be a very strong market for us. I cannot be more pleased with the quality of our land positions, and even though Phoenix maintains its status as a hot market, it does not mean it comes without its own challenges. Labor continues to be a constricting factor in that market. Volumes are up year-over-year and certain trades continue to struggle to meet demand. Across the country, we work closely with our divisions to instill a superior plan production cadence in order to assist our trade partners in improving their efficiency. We are optimistic the labor issue will continue to improve, but I would again cautious all to recognize that the changed labor infrastructure must evolve over time for us to see historic housing start levels again. Our three markets in California are operating in areas where overall demand continues to be healthy, but I would say timing on a number of new community openings has created some volatility in our weekly paces. The California markets also continue to see disproportionate municipality delays and more specifically delays with permitting and utility providers. We find these challenges to be dramatically consistent across all three markets with varying levels of severity. As Dave mentioned, land continues to be very competitive and our investment strategy remains focused on deal structure and remaining true to our stay core approach. Moving next to the Central area. We know all too well how the oil industry’s challenges influenced the Houston market. And while we are not out of the woods yet, Houston had exhibited signs of stabilization. The price…

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And it looks like we have our first question from Mike Dahl with Credit Suisse.

Hi. Thanks for taking the question. This is Anthony Trainor filling in for Mike this morning. So my first question, I just want to touch based on the positive July trends, so what was the July comparison from last year? And then how did the monthly comparisons in '15 pan out in both August and September?

Well, good morning. Yes, we were really pleased with our July sales. As you saw, we were 30% up. As we look at the quarter coming into the July, our strongest month was April and then May was good and June decelerated a bit with July up quite significantly. When I look at it year-over-year, the comps are pretty tough in Q3. July was up almost 10% but that’s pretty light compared to the balance of the quarter. August was up year-over-year in '15 26.5% and September 18.5. So I think the message there very similar to our last two quarter calls is we need to be very careful not to expect that run rate as we make it through the quarter. We’re quite delighted with the July sales but just like we said in April, I would not expect the way the comps look going forward that we’re going to maintain that 30% increase quite different.

Great. Thanks for the color, Sheryl. And then just to follow up, I guess, when you look at your strong July trends, how do those trends compare regionally?

So, if you look around the country and very similar to I think what I said on the call; July, we were up in all regions but the bulk of that came from the East. The Central was up slightly which I’m quite delighted about giving the trend we’ve seen over the last two quarters and the West was up quite nicely as well. So the good news is it wasn’t a market carrying that, it was really good performance across the portfolio.

Great. Thanks.

Thank you.

Thank you. Our next question comes from Ivy Zelman with Zelman & Associates.

Hi. Good morning. Thanks for taking my questions. Sheryl, listening to you I appreciate and compliment you guys on the transparency and specifically on guidance. And I think one of the things we all look at is over the last few years, you guys have been very busy strategically, exiting Canada, making pretty significant acquisitions, opportunities in various markets to diversify. And we look at your returns today, which are at about 9% on equity and we’re forecasting something in that, call it, sub-10, right around 10. Unfortunately, at book value I think that the investment community is kind of questioning is where can returns go? How are you going to drive shareholder value and create an acceleration in returns? How are the acquisitions actually performing relative to where you underwrote them? And recognizing you are incrementally buying back stock, I think the way, David, you described that you’ll be opportunistic depending on stock price, at book value, isn't that a great buy? So I know that's a tough one, but a couple in there. And you didn't leave out commentary around some of the markets you acquired company assets in, including Chicago and Atlanta, on your market-to-market commentary. So, maybe combined, how they are performing relative to where you underwrote them? And then talk about returns, please.

Yes. Dave, maybe you’ll take the return piece and then I’ll touch up on the markets.

Yes. Ivy, returns is something that we’re very focused on and as you articulated, it’s a bit of a transformation for us between divesting out of Canada and then bringing on the three new businesses. So obviously that’s going to create a little bit of a drag kind of on a year-over-year basis when we look at where we are now to the prior year. And we see some of that again in our SG&A as we delevered there in the first half. So we’re working through really this transformation. And then as we move forward, we feel like we’re going to be able to drive efficiency in the business both on the SG&A line and probably some opportunity on the homebuilding margin side as well. And we’re going to be able to turn the assets maybe a little bit more quickly and that’s going to lead to returns that will be accretive going forward. And that’s really the way we think about it is how do we drive year-over-year accretion. We don’t necessarily have a set target out there. But we know we have the opportunity to increase that each year.

Yes, I couldn’t agree more, Ivy. As you articulated and I appreciate it, we’ve been very busy the last few years and this has been a long-term plan. And we were focused on one, diversity; two, driving top line growth. And now as Dave said, it’s really about driving bottom line growth, maximizing our pricing power, maintaining the SG&A leverage we’ve always been known for. But most importantly it’s really going to be around operational excellence and making sure our execution is tight to get those turns up that Dave spoke about. To your next question, Ivy, on some of the markets. I tried to provide a high level, but let me focus in on the new acquisitions. I’ll start with Atlanta. I couldn’t be more pleased. As you know, we are just over a year in one business and just a matter of months in the second business, and the two businesses are working very nicely together. We’re serving a very broad range of consumer groups. So with the second acquisition, we’ve really brought in a much more in-town product profile and it’s a very nice complement to the first-time buyer product that we offered all of last year through the JEH acquisition. But the market is holding very nicely. We’re seeing pricing power, we’re seeing volume, we’re seeing better than anticipated margins. I feel good about it, the integration, the synergies really across Georgia. Carolinas, also very strong. What we want there is to get our scale up. They’re still two small businesses for us but we haven’t seen any softening, both very strong markets and as I said, most importantly there it’s about getting the new communities open, it’s our acquisition strategy, it’s really about working to gain scale. The other one would be Chicago and I would tell you that one’s a little softer than we expected and that one is not performing to our underwriting. The others have actually exceeded our expectations. We are doing a lot of work around product repositioning, submarket orientation, production efficiency really across the board. All the reasons we added that to the portfolio we still feel very good about. It’s a very small business for us. It’s our smallest but we think in the years to come, we have some good expectations.

And then just maybe the last thing you mentioned the share repurchase, Ivy, we did do a little bit more there in the second quarter. We generated more cash than we had originally anticipated through closings. And then we made pretty good movement on our finished spec inventory, which finished spec inventory is also tied to enhancing the returns. But given the discount that we’re trading at it’s really hard to imagine right now a better return on investments and buying back the stock. So we’re going to continue to assess that going forward. It always comes down to putting the capital to work where we believe we’re going to get the longest best returns and we’re going to be opportunistic going forward as we move through the year.

Both answers were very helpful and I realize you guys have a six-year supply of land and look like you’re very well positioned. My only food for thought would be that your stock seems like one of the most attractive buys right here, so I would be aggressive and be buying here. But I’ll let someone --

We couldn’t agree more with you, Ivy. Thank you.

Okay. Thanks.

Thank you. Our next question comes from Nishu Sood with Deutsche Bank.

This is actually Tim Daley on for Nishu today. So my first question is just regarding the quote in the press release about the construction costs were neutral to gross margins. I was just wondering if you could break that down for us. So were costs flat year-over-year on a square foot basis or was it that they increased in line with the ASP increase?

It’s more they increased in line with ASPs. We’re looking at as a percentage of homebuilding revenue. What we saw for the second quarter were direct costs were up a bit in a few things like lumber, OSB, steel, drywall and of course a little bit there on labor as well. We have price locks in place that helps mitigate some of the cost of lumber. But the challenge continues to be on the labor side. We’re seeing some easing in the first half. We should probably expect it to tighten a bit in the second half, especially in a high volume market such as Phoenix, but we’re in better shape from production capacity going forward. Helping us to adjust where we have the limited labor in the markets and that’s more through better planning and coordination with the trades.

All right, great. Thank you. And then I guess kind of partially a follow on to that. Just curious as to – obviously the specs coming in a bit higher on the gross margin and then your expectations. Just curious about how they were selling, where they were selling and regionally where you saw this gross margin strength? And did this – was that kind of higher than expected gross margins there due to this more moderate pace of construction cost increase?

Yes, the specs, they’re generally across the board. We have some areas a little bit more concentration. But it really goes back to what our expectation was. Some of these were aged specs. So we are essentially making a guess on what we thought we could sell them for and that was baked into our margin guidance. We ended up selling them for less of an incentive than we had originally thought and that’s where we got a little bit more of the margin pickup than we had contemplated.

And to Dave’s point, it really was across the portfolio. We had inventory across the portfolio. There was only a couple of markets that we probably were – we had a little higher aged inventory that we would have liked. But I think the margin surprise was across the board.

Great. Thank you.

Thank you. Our next question comes from Michael Rehaut with JPMorgan.

Hi. This is Neil [ph] in for Mike. So I appreciate the color on labor constraints in Phoenix earlier, but I guess in Houston how are you thinking about maybe the potential labor transfer from the oil industry to homebuilding given the E&P cutbacks we’re seeing? Is that a bit slower versus your original expectations or are you seeing some relief?

Yes, we are seeing some relief but it’s always slower coming back than going out the door. But we are not feeling the type of – the labor crunch for sure that we felt over the last two, three years. The thing that puts it a little out of whack is some of the weather issues we’ve had. But we are rebidding really every trade across the board. The teams have done a very good job about tightening that up. And for the first time in probably three, four years there, we’re actually having trades knocking at the door looking for work.

And that’s coming through now on the cost side, we’re starting to see those come down.

That’s great to hear. Are you seeing that across other regions or just mostly concentrated to Houston?

The relief is really only Houston. I don’t think I – we are competitively bidding and looking at our production cycles, on our planned production to make it easier for the trades, but what we’re really trying to do is offset increases more than seeing any benefit today, to be honest.

Got you. Okay. That’s all for me. Thanks.

Thank you.

Our next question comes from Jack Micenko with SIG.

Hi. Good morning. Dave, I hope you could help us understand the 10% G&A number for the year? 1Q and 2Q were both above the prior year. Big dollar increase in G&A year-over-year, obviously some community count growth driving that. But to get to the 10, it looks like you got to be – year-over-year declines at least in the third or fourth quarter to get to that 10% number because you had good deliveries this good quarter and the guidance kind of helped the same on the top line. So help us understand that – do expenses go down on a dollar basis in the back half?

It’s a good question, Jack. So I guess let’s talk about where we started, right. So we did deleverage in the first half here in the second quarter. That is due to the M&A and integration costs for the new markets as well as the markets. These new markets typically run a little bit higher SG&A. And over time we’re going to work that down. You’ll see a little bit of that kind of in the back half more so in '17. But we also made a lot of investments back into the business in people and systems, which we did last year and a little bit in the first quarter. So what we had said was we’re going to see deleverage in the first half and then I think in the prepared remarks, my comment was somewhat flattish as a percentage in Q3 and then we’re going to see leverage in Q4. Some things to consider too in the back half and maybe looking at Q3, we expect to see some movement in ASP probably up in the mid-single digits. G&A dollars are going to stay relatively flat to Q2. So a combination of those factors will get us to flattish Q3 and some decent leverage in Q4.

Okay, that’s helpful. And then 43,000 lots total. On your math, it looks like you own outright 31,000 of those including the 1,200 that you sold. What would you define as the non-core part of the 31 that’s left? Just help us size the embedded opportunity there from future land sales. I know you’re not giving guidance beyond the quarter, but how big is that inventory, would you define as non-core?

Yes, it’s probably, Jack, about 1,900 lots and I’d tell you they’re on our books for about 6,000 a lot. So from a dollar perspective not much and not significant I wouldn’t say on a lot perspective either.

And it’s going to take some time.

Yes. Some of those we’ll look to sell. It can take 12 to 18 months until that all transpires though.

Okay. But then similar probably decent margin content I’d assume as well, like the sale that you talked about in July?

Yes, I’d like to believe they’re going to be decent. I don’t think they’re going to be at the level of July. That’s the point we’re trying to make. That’s a pretty significant margin. We had one piece in particular that resulted in the bulk of the lots sold that were on our books for basically next to nothing. So we got the big margin bump there. I think you’re going to see something a lot more modest going forward.

All right, great. Thank you.

Thank you. Our next question comes from Will Randow with Citigroup.

Hi. Good morning, guys, and thanks for taking my question.

Good morning.

On the mortgage credit availability front you mentioned for example – if I remember correctly even maybe it would have been Atlanta, average credit score about 720. Can you talk about some of the things that are being done to, if you will, ease up credit availability that you’ve seen over the past, I’ll call it, quarter and going forward?

Will, we haven’t really seen the number of challenges that people articulate from quarter-to-quarter. Given the quality of our buyer group, we really are able to get these folks through some more mortgage process. When I look at our buyers, even when I look at our first-time buyers, Will, we’re dealing with folks that have an 83% loan to value on average. Like I said, 36%, 37% debt to income, a high percentage of them are millennials but we’re dealing with average household income’s well over 100,000; credit scores ranging from 700 to 760 across our portfolio. So with our mortgage operation they have done just a really stellar job in getting them through the process.

That makes sense. And on an unrelated follow up to Jack’s question, in terms of – when I look at sales commission and marketing costs, is there any room to bring that down or are there natural impediments, if you will, like external brokered commissions that would keep that level elevated over the next year or two?

I think there’s always opportunities and that’s what I said in the script. We’re always looking for ways to improve. As we’ve opened a pretty high number of new communities this year that certainly has thrown it a little bit more out of whack than you would normally see given just a more steady growth. On the broker side, that’s very market specific. We have some high participation in some markets and certainly with the specs I think we probably saw a little bit more. But we’re going to continue to cooperate with brokers across the portfolio.

All right. Thanks again and congrats on the buyback and progress.

Thanks so much.

Thank you. Our next question comes from Stephen East with Wells Fargo [sic] Evercore ISI.

Good morning, Sheryl and Dave.

Good morning, Stephen.

Sheryl, you mentioned some of the land sales were coming because of the maturation of the cycle and as you look at that and you think about your land buying as you move forward and really your community growth, not looking for a forecast for community growth but looking for as you look out several years, what type of growth would you all be satisfied from the community perspective? And what do you think that sort of implies for land spin moving forward? And if it implies a smaller amount, where do you go beyond share repurchase? Would you prefer to pay down debt or do you get back on the M&A train? How does it look?

So let me take the first part of it, Dave, and maybe we can then talk through the share side. As you said, Stephen, we’re probably not going to give a whole lot of clear guidance on what the subsequent years look like. What I would tell you is from a strategy standpoint, if you look at the book that we have today, the lots owned are reducing every quarter. We think that’s appropriate given where we are in the cycle. The lots controlled are increasing every quarter. So overall, our overall land position even though you’re seeing it reduce – and if I go back to – gosh, if I go back to the IPO I think what we said three years ago when we were sitting there at 9.5 years of supply is that over the next two to three years you should expect us to average in that six to seven range given that we’re a developer. And obviously the magic is really in the individual market supplies because you have quite a range from very, very low to some of our higher master-planned communities. I think the other thing worth noting is the type of land deals. I’ve mentioned over the last three, four quarters that we’ve really changed the average duration in the land deals we’re acquiring, the number of lots and we’re getting the benefit of our early investments, those large community positions and how that’s continuing to come through the business. So I think that sort of cadence is what you would expect to see. How that translates into community growth, we’ll have to see. I’m fairly certain that you won’t see the types of numbers you’ve seen over the last two, three years averaging 25% to 35% growth. I think you should expect to see us more in line with the competitive set, which I think is generally expected somewhere in the single digits. That’s all dependent on market circumstances, Stephen, and I would say the same about M&A.

Okay, all right. Thanks. And Dave, what would you do – would it be debt pay down or do you think you would move towards more share repurchase?

We’ll go with our capital allocation philosophy. So obviously with the money we look at reinvesting back in the business organically, we always have a habit of looking at potential M&A. But as you know, market conditions have to be right and that’s obviously not really the case in our opinion right now where we see kind of a spread between buyer and seller. But market will ultimately help drive that. From a debt pay down perspective, honestly, I don’t see us necessarily paying down any of our senior notes, at least any time soon. If you look at the blended average of the rate, it’s 5.5%. They’re all sub-6%, so relatively cheap money. So that would lead us down to returning any excess cash to shareholders. There is opportunity to look at maybe a more sustained buyback program. We’re obviously limited around our float right now. And then of course another opportunity down the road could be dividends.

Okay, I got you.

But I would just tell you that our goal ultimately Stephen is to return any excess cash to shareholders.

Okay, all right. And then on the gross margin, last quarter in your conference call you thought 2Q would be the low point because of purchase accounting and specs. But now the third quarter is going to shape up similar to the second quarter. What’s changed out there and how permanent do you think that change is?

Yes, we outperformed our guidance there in the second quarter and that was really more mix based. We just skewed towards some higher margin rate areas than we expected. If you look at – we over-performed on closings and a lot of that was actually in Phoenix and Houston, two of our higher margin markets. If you take Houston as an example, we were probably a bit conservative there given we’ve had issues in the past with weather and utilities. And just one example, we’re able to bring in 30 closings from Q3 in our Riverstone community there in Houston, which have some absolutely great margins. So really what you saw is a little bit of pull forward from Q3, end of Q2 and that’s why we’re holding steady on our annual rate for gross margin.

Okay. Perfect. Thanks a lot.

Thank you. Our next question comes from Patrick Kealey with FBR & Company.

Hi. Good morning, everyone. Thanks for taking my questions.

Good morning.

So I wanted to focus first, obviously I appreciated all the detail on your first-time buyers, so when we think about capital allocated to land going forward, is it fair to assume that kind of given those trends there may be more of a focus on this type of buyer when you’re going out and buying land, or should we expect it to be – continuing to be relatively broad based but be kind of advantageous given prices in maybe certain markets?

Yes, the interesting thing about the first-time buyer is really being able to source the land where your residual will allow you to serve that buyer group, right. We’re always looking for the highest and best use of every land opportunity. And we actually have, we’re very fortunate given the length of our larger master plans that we can be pretty nimble there based on market conditions. The honest answer is we’re going to be very focused on co-locations in certain markets where the supply and demand characteristics make sense. And the first-time buyer continues to be an important part of our overall consumer mix, as does the adult and that first-time move-up buyer. If you look at the overall land bank, you can see that – as we’ve talked about before, maybe you can’t see in great detail, but what we see is that we still have opportunities from building scale in our newer markets. So there’s certainly some great focus there. And those tend to be a little bit more disproportionate to that first-time buyer group.

Okay, great. Thanks. That’s helpful. And then obviously with what you all have been doing, like you said, lot of supply coming down, focus on shorter life products and then obviously this spec strategy, there’s a big focus on balance sheet efficiency here. So understanding there’s a few different moving parts and obviously the power that better inventory turns can have on ROEs, when do you expect kind of all these – these different prongs to really be hitting on all cylinders? And is it something that we can expect in the next, maybe we’ll call it 12 months or is it more from the understanding of, look, it’s a longer term play. But as we sit here and think out 2Q '17, inventory turns are probably better given kind of the initiatives you’ve launched.

Yes, I would say – it’s a great question. It’s probably something more in line with 12 to 24 months. Some of the things that we’re working on we kind of have to cycle through. So it’s a little bit longer maybe then seeing as end of the year or beginning of next year.

But the trajectory – we’ll start seeing the trajectory quarter-to-quarter, but Dave’s right. The overall expectation that we have is going to continue to evolve over the next 12 to 24 months.

Yes. And we’ve actually started to see it quarter-to-quarter now. It’s inching up slowing. But you’re right. Our focus is on really balance sheet management and driving efficiency there to drive the return.

Okay, great. Thanks for the time.

Thank you.

Thank you. Our next question comes from Alvaro Lacayo with Gabelli.

Good morning.

Good morning.

I wanted to ask a question on absorption. So it looks like the first half of absorptions were down year-on-year and then based on the guidance you’re providing, it looks like you’re expecting at least flat for the second half. Maybe if you could just provide some puts and takes about your expectations, and what gives you conviction around the absorption pace based on the guidance you provided?

Yes, as you said our first task as we expected was down. Some of that has to do with the comps, specifically in our Central area and a little bit in the West in our California positions and the way we were going in and out of communities. As I look to the second half of the year, I do expect us to be flat. We do have different comps in Q3, as I mentioned at the start of the call or the start of the Q&A. And so I’m not saying it’s an easy comp but I have a great deal of confidence based on what we’re seeing in the markets today that we should be able to, even with the difficult comps, remain in an absorption pace that’s flat. Obviously, we’re also dealing with just normal seasonal paces as we kind of travel through the second half of the year.

Okay. And then just a little more color on Phoenix, just on the back of some competitor comments calling Phoenix suffered some weakness. Can you just talk about sort of the performance there on a sequential basis Q2 versus Q1 and then maybe some commentary around pricing power?

Yes. I heard that. I can’t respond to others. I can only share with you that we have a great market here in Phoenix for us. And this seems to be a consistent theme for us for, I don’t know, at least the last three years where we don’t – we seem to be a little contrarian to what others are articulating. When I look at sequential year-over-year, we’re down. Most of that’s self-inflicted. We just can’t build them this quick. When I look over the last few quarters, really over the last 12 months, we’re basically at or flat. So I continue to credit the teams’ work on the quality of their land positions. I continue to credit the execution they have. We are working hard to deliver the homes. But I couldn’t be more pleased with the sales pace we’re seeing. From a pricing power standpoint, we’ve got a great deal of discipline in our pricing approach on a community-by-community basis. We’re pleased with the pace. We’re pleased with the margins. We don’t want to shut that off. But we don’t seem to be having the same experience others are communicating.

We’re raising prices, it’s just modest, as Sheryl said, because we’re trying to keep that momentum going. But we actually have communities where we saw people waiting for releases to purchase the home. So it does really get down to our positions and how strong they are in the market.

In fact, when we look – to Dave’s point, when we look at the portfolio across the market, I would tell you in the quarter we raised prices in a strong majority of our communities.

Okay, great. Thanks for the color.

Thank you.

Thank you. Our next question comes from Alex Barron with Housing Research.

Thanks. Good morning.

Good morning.

I was hoping you could elaborate a little bit more on the Texas markets and how – the differences you’re seeing between Dallas, Austin, and Houston both in terms of sales rate and incentives and pricing trends? And I’m particularly curious about Houston. Obviously the Central region was down 17%. So I’m wondering if the bulk of that pull down was due to Houston or whether the other markets are down as well.

Yes, a fair question. The bulk was Houston when I absolutely look at the markets. And hopefully we signal that to the market, because we had just an amazing first half and actually our Taylor Morrison business had a very strong first half and third quarter last year. So we were in unprecedented paces in 2014 and '15. And so I would say that we have moderated to a much more normal place. Austin was also a bit down from a pace and an overall sales – sales based on community count was pretty close to flat but pace was slightly off. And like I said, we are starting to see that come back. Darling Dallas was slightly up. And the Dallas market has been very solid. And we’ve seen paces and pricing move pretty aggressively over the last 18 months or so. I have a little caution there because I think we’ve seen that market move so quickly. And I think even especially at the lower price points, I think pricing has moved up pretty aggressively and I think that’s starting to challenge affordability. I think the entry level is really getting redefined there. It’s almost now 300 plus is where you’re seeing most of the start action in the marketplace and that’s really been forced by land prices. But still a very tight supply and VDL is still way below equilibrium. So I think the market will continue to move along nicely but probably not at the pace that we’ve seen over the last 12 to 18 months.

Okay. One of your other competitors commented that Dallas I guess – I think they used the word hit a speed bump in June. I was wondering if you guys saw something similar or maybe it was just more particular to them.

We didn’t hit a speed bump in the second quarter. I think the numbers were quite nice. When I look at the July activity, both traffic and sales I would say hit a speed bump and I think that’s what it is. As we move into August, September we’ll see. And even based on the first week of August and the sales activity they’ve had in the first couple days, I think July was more of an anomaly. But, no, our second quarter was quite strong.

Okay, great. Thanks a lot.

Thank you.

Thank you. It seems we have no further questions at this time. I will now turn the call over to Sheryl Palmer for closing remarks.

Thank you everyone for joining us while we share our second quarter results, I appreciate it. Have a great day.