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Taylor Morrison Home Corp (NYSE:TMHC)
Q2 2021 Earnings Call
Jul 29, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Taylor Morrison's Second Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce Mackenzie Aron, Vice President of Investor Relations. Please go ahead.

Mackenzie Aron -- Vice President of Investor Relations

Thank you, and good morning. I am joined today by Sheryl Palmer, Chairman and Chief Executive Officer; and Dave Cone, Executive Vice President and Chief Financial Officer. Sheryl will provide an overview of our performance and strategic priorities, while Dave will share the highlights of our financial results, after which we will be happy to take your questions. [Operator Instructions] 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 earnings release, which is available on the Investor Relations portion of our website at www.taylormorrison.com.

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 SEC, and we do not undertake any obligation to update our forward-looking statements. In addition, we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in the release. Now let me turn the call over to Sheryl.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Thank you, Mackenzie, and good morning, everyone. We appreciate you joining us today, and I sincerely hope each of you are doing well. I will start today's call with a brief overview of our second quarter results and then spend some time discussing our strategic focus on driving long-term sustainable improvement in our earnings potential into 2022 as well as our view on the market. During the quarter, we delivered 3,268 homes, at an average sales price of $503,000, driving a 12% year-over-year increase in our home closings revenue to $1.6 billion. While a few of our second quarter closings were slightly delayed by weather and supply chain interruptions in some of our markets, we remain committed to our prior full year guidance of 14,500 to 15,000 closed homes. Our home closing's gross margin improved 370 basis points year-over-year to 19.1%, exceeding our prior guidance in setting the stage for further improvement in the quarters ahead.

From a demand perspective, the market remained favorable, particularly in April and May, with some normalization in June. This drove strong pricing power across our markets and 23% year-over-year increase in our monthly absorption pace to three.four net sales per community. Each of our consumer groups experienced year-over-year growth in sales basis led by outperformance among active adult buyers who are notably reengaged in the market and responding well to the recent national expansion of our premier lifestyle brand, Esplanade. However, we intentionally limited our sales releases and delayed the release homes until later in the construction cycle to maximize our gross margin and navigate the tight supply side governors on housing as we build through our record backlog of over 10,200 sold homes. In anticipation of elongating cycle times and constrained labor and material availability, we intentionally accelerated our construction cadence and successfully increased our monthly production pace by 140%, year-over-year, and 17% sequentially to a record 4.8 starts per community during the quarter. This left us with all the starts in the ground necessary for our full year closings target, and we are proactively working to stay ahead of further supply challenges through the remainder of the year.

And lastly, we continue to make progress toward further streamlining of our operations, leveraging our leading market position and expanding our land financing tools. To the latter point, I'm pleased that we recently finalized new land financing vehicles that will enable us to cost effectively increase our option land position to at least 40% within the next 18 months. These arrangements improve the capital efficiency of our land portfolio and reduced risk while enhancing our returns without any meaningful change to our long-term gross margin opportunity. This focus on capital efficiency is one pillar of our strategic playbook, which also includes operational excellence and customer experience. By focusing on these three strategic pillars, we are committed to taking full advantage of our competitive strength after gaining the scale, product portfolio and team capable of generating attractive long-term returns for our shareholders. These efforts are gaining traction and will drive notable gains in our operating metrics beginning in the second half of the year. This is consistent with our original timeline following the acquisition of William Lyon Homes last year, as we have now established our new consolidated cost structure and pave the way for further operational leverage in the quarters ahead.

With six homebuilder acquisitions completed in the past seven years, we have a proven track record of acquiring underperforming companies and driving significant improvement in their financial performance by applying our strategic playbook. As we have shared in the past, it takes approximately 18 months before the benefits of a sizable acquisition can be recognized in our financial results. To give you a sense of the magnitude in looking at the markets impacted by our acquisition of AV Homes in late 2018, we have improved gross margins by over 500 basis points to an average level that is more than 100 basis points stronger than the overall company since early last year when our new starts and operational improvements began to take effect. On a similar note, we have also seen notable improvement in cycle times and returns in each of those markets driven by the simplification and scale achieved after our integration efforts. Because of similar progress with our William Lyon acquisition as we approach the critical 18-month mark since that deal is closing, we now expect to deliver a full year home closings gross margin in the high 19% to 20% range this year.

This strength is expected to continue in 2022 and based on the composition of our sold homes and backlog and confidence in the operational enhancements and synergies of our combined business, we expect to generate a home closings gross margin of approximately 22% next year. Combined with our focus on optimizing our balance sheet and cash flows, this margin improvement is expected to drive a return on equity in the high teens range this year, followed by further improvement to an ROE over 20% in 2022, both of which would mark new company highs. This would represent improvement from ROEs of 10% in 2019 and 8% in 2020 as we have quickly and meaningfully pulled through the benefits of our acquisitions and strategic initiatives that have transformed our ability to compete effectively and generate long-term value. We believe this positive momentum warrant significant multiple expansion from our current stock valuation, which, in our view, does not appropriately account for our attractive and improving earnings and returns. Accordingly, we more than doubled our share repurchase to $107 million during the quarter to buy back 3.8 million shares outstanding and expect to continue to utilize share buybacks to opportunistically return excess capital to our shareholders and further enhance our returns.

Now I'd like to spend some time discussing the operational enhancements underway that support this outlook. After multiple large acquisitions that propelled us into a top five homebuilder last year, we have a renewed opportunity to double down on our core focus of operational excellence, especially within our newer markets to fully capture the benefits of scalable production-oriented home building across our entire portfolio by streamlining and simplifying our business. To that end, our teams are working closely to optimize our floor plan and option offerings from the combined business and pursue cost rationalization and value engineering opportunities. To further accelerate these goals, we recently hired a national senior leader focused on product design that brings over 35 years of residential construction and engineering experience to enhance our product portfolio for improved construction efficiency and consumer appeal. By identifying the most efficient and profitable plans and SKUs, we can drive lower cost, faster cycle times and streamline our trade partner schedules. In addition, our purchasing team is working closely with our operators and supply partners to maximize our buying power and secure product availability and find solutions in today's supply constrained market. They also continue to push ahead on evaluating our material contracts, supporting SKU rationalization and improving our purchasing processes to reduce our construction costs.

During the quarter, we also completed the rollout of our standardized design packages known as Canvas to all our divisions and achieved our goal of implementing them as a template for all spec homes as well as many of our model homes going forward. These Canvas pallets are curated by interior designers using features with the highest take rates, margins and product availability to offer our customers a compelling value and easier design experience. In addition, these packages improve supply chain visibility, increase expected home closings gross margin and reduce anticipated construction time lines. Early pilot markets results indicate more than a two week cycle time advantage compared to our non-Canvas homes even in today's unique market.

Given the many benefits, this package approach design options is a notable shift away from our traditional design center model that we envision becoming the norm for a significant portion of our sales, including to-be-built homes especially within the first time and first move-up consumer groups. This evolution in our option strategy is just one way in which we are harnessing our scale to create a more efficient, predictable and profitable business. Amid today's favorable market conditions, we are also leveraging our strategic sales tools to maximize our top line growth as evidenced by the 32% year-over-year increase in our average order price to $597,000. This strong growth was also partly a function of favorable mix driven by our 50-plus lifestyle buyers and our strategic emphasis on lot premiums, which have more than doubled on sold homes in our '22 backlog.

To balance pace and price, we have raised base pricing in nearly all our communities, limited sales releases and selectively employed competitive bidding processes that drove these higher lot premiums. Looking forward, while we continue to see pricing opportunity across our markets, we are cognizant of the impact of higher prices on buyer sentiment and affordability and expect market dynamics, including the pace of price inflation to return to more sustainable levels in the coming months. With this in mind, we have been thoughtful in our pricing strategies to protect the long-term value of our communities and maintain affordability by using our strategic selling processes tailored to each neighborhood's price point and life cycle.

As you have heard me share before, one way in which we gauge our consumers' financial ability to withstand higher pricing or interest rates is by monitoring the spread between the actual interest rate of our buyers finance by Taylor Morrison Home funding and the maximum rate they could have qualified with all else being equal. This spread was roughly stable sequentially at approximately 700 basis points for conventional buyers and 500 basis points for FHA buyers. Average LTV, debt-to-income ratios and credit scores were also stable at very healthy levels on a sequential and year-over-year basis for our borrowers. Other metrics we monitor for buyer affordability also remain healthy. For example, the square footage of sold homes increased sequentially in the second quarter and is poised to increase further in the back half of the year based on our backlog. In other words, our buyers are choosing to spend more to buy bigger homes that meet their needs, another strong sign of financial health and confidence.

And lastly, while much attention has been given to the impact of added state buyers on local affordability and we expect favorable migration and demographic trends to continue to support healthy demand and pricing in markets such as Austin and Southwest Florida, which have long been attractive destinations for their employment and lifestyle opportunity. In fact, in recent months, we have seen further acceleration in the share of out-of-state shoppers and buyers from California in our Texas and Nevada market as well as Northeast consumers in the Southeast and Florida. In these markets, the share of these out-of-state buyers is back or above pre-COVID levels and not showing any signs of reversing. Now let me turn the call over to Dave for his financial review.

David Cone -- Executive Vice President and Chief Financial Officer

Thanks, Sheryl, and good morning, everyone. Before diving into this quarter's financial performance, I want to take a moment to address the recent announcement about my upcoming retirement. After nearly a decade at Taylor Morrison, which has included our IPO, six homebuilder acquisitions, the exit of our Canadian operations, and so much more, not the least of which has been the lasting relationships and friendships. I have been fortunate to develop with our team members, partners, colleagues in the industry and investors. I'm at a position to step back from my professional career to spend more time with my family and on philanthropic interests.

While I will greatly miss the people and culture at Taylor Morrison, which are second to none, I am confident I will be leaving the company well positioned for future success, and I'm committed to ensuring a seamless transition to my successor. The search process is well underway as we seek the strongest candidate to help lead the company in its next chapter. Until then, I will be here working closely with Sheryl and our teams as we head into the second half of the year, which I believe will deliver the strong financial results we have been striving toward. Now let me turn to the details of our second quarter results. We generated net income of $124 million or $0.95 per diluted share. Compared to the second quarter of 2020, this was up 90% on a GAAP basis and 19% on an adjusted basis after excluding the impacts of our acquisition of William Lyon Homes in the prior year period. For the quarter, net sales orders totaled 3,422 which was roughly flat year-over-year, while our monthly absorption pace increased 23% year-over-year to 3.4 net sales orders per community.

As Sheryl described, we managed activity to maximize our margin opportunity by limiting the release of spec homes later in the construction cycle and built through our record backlog. At quarter end, this backlog was 10,228 homes, representing a sales value of $5.7 billion, up 78% year-over-year. Our cancellation rate was 5.2%, an all-time company low that reflects the strength of our backlog and consumer quality. Our average community count of 332 was consistent with our prior guidance. Looking ahead, this metric is now expected to be approximately 330 to 335 in the third quarter as well as for the full year. As we look out further, we anticipate double-digit growth in our ending community count to the high 300 range in 2022, followed by a sharp inflection higher in 2023 based on our pipeline of new community openings and development time lines.

In addition, we continue to expect to open nearly 150 new communities this year. These new communities are spread across our portfolio and consumer groups led by gains in Phoenix, Austin, Sarasota and Naples, which are among our highest margin contributors. Turning to closings in the second quarter. We delivered 3,268 homes. With the strong acceleration in our start pace to 4.8 homes per community and our construction and purchasing teams close coordination with our trade partners and suppliers, we remain committed to delivering between 14,500 and 15,000 closed homes this year, an 18% year-over-year increase at the midpoint. This guidance includes 3,300 to 3,500 homes in the third quarter. Our home closings gross margin improved 370 basis points year-over-year to 19.1%, exceeding our prior guidance. Building on this positive momentum, we anticipate our home closings gross margin to improve to about 20% in the third quarter and the low 21% range in the fourth quarter. This will drive our full year gross margin to the high 19% to 20% range, which is ahead of our prior expectation in the low 19% range due to strong pricing trends and faster-than-anticipated traction of our operational initiatives. As Sheryl discussed, in 2022, we expect to drive further margin improvement to approximately 22%. This would represent gains of at least 200 basis points from our 2021 anticipated gross margin and approximately 540 basis points from 2020 due to benefits of our recent acquisitions.

Our SG&A as a percentage of home closings revenue was 10.2%. For the full year, we continue to expect our SG&A to decline to the mid-9% range, driven by cost leverage from the anticipated increase in our total revenue and overhead synergies from our enhanced scale. Turning now to our land portfolio. We invested approximately $451 million in land acquisition and development in the second quarter and continue to expect our total land investment to be approximately $2 billion for this year. Our land underwriting process remains disciplined to acquire land with attractive risk-adjusted returns that are accretive to our overall portfolio where we see opportunities to drive profitable growth over a full housing cycle. Because we are well subscribed in the near term, the land acquisitions we are approving today are largely expected to impact deliveries in 2023 and beyond.

In the second quarter, we added approximately 3,000 lots on a net sequential basis to our total supply of lots owned and controlled of 76,000 home sites. This represented six years of total supply, of which 3.9 years was owned. Approximately 35% of our lots were controlled via auctions and other arrangements, up from 28% in the second quarter of 2020, even before the benefit of our recently finalized new land financing vehicles that Sheryl described earlier. Equipped with these new land ventures, we expect to achieve an increase in our controlled share to at least 40% next year. These new land financing vehicles include more programmatic land banking for short-dated holdings and a land venture for long-dated parcels. These tools offer another layer of sophistication to our existing asset-light land strategies such as joint ventures, seller financing and project financing.

We will lead the execution of these new vehicles and work closely with our local operating teams to identify land opportunities where such financing provides the optimal risk-adjusted cost of capital. Turning now to our balance sheet. We ended the quarter with $1.1 billion of total liquidity, including $366 million of unrestricted cash and $755 million of available capacity on our $800 million revolving credit facility, which is undrawn outside of the normal course letters of credit. Additionally, at quarter end, our total spec inventory equaled 4.7 homes per community, nearly all of which were under construction. This was up from approximately three homes per community at the end of the first quarter.

Going forward, we intend to balance our mix of to-be-built and spec homes as we deploy both strategies depending on local market conditions and the price point of our diverse portfolio of communities. Our net debt-to-capital ratio equaled 40.5% based on our outlook for strong cash flow generation, we continue to expect our net debt-to-capital ratio to reach the low 30% range by year-end, followed by further deleveraging in 2022. Lastly, as previously announced, in the second quarter, our Board of Directors authorized an increase in our share repurchase authorization to $250 million through the end of 2022. During the quarter, the $107 million spent brought our cumulative share repurchases since 2015 to nearly $795 million or 33% of shares outstanding at an attractive average price of 2050.

At quarter end, we had approximately $192 million remaining on our current repurchase authorization and expect to continue to be opportunistic given our compelling stock valuation. With a strong operating cash flow outlook in excess of $600 million annually, we are well positioned to continue to invest in our business for profitable growth, further deleverage and our balance sheet and return excess capital to our shareholders via share repurchases. Now I'll turn the call back over to Sheryl.

Sheryl D. Palmer, Taylor Morrison Home Corporation-Chairman, President & CEO

Thank you, Dave. I will wrap up by saying that we continue to expect 2021 to mark an important inflection point in a multiyear journey to realize the operational and financial advantages of our significant growth. As I look ahead to the second half of the year, I'm energized by our team's strong focus on achieving our operational priorities and delivering a record year of home closings to our buyers. Our disciplined focus on managing sales paces controlling costs and ramping production is expected to drive strong improvement in our home closings and gross margins in the coming quarters and into 2022.

To summarize our outlook, in the next six months, we expect to realize a significant pivot in our financial results, highlighted by our expectation for a home closings gross margin of approximately 22% in 2022. This performance is expected to drive new record high returns on equity in the high teens percent range in 2021, followed by further accretion to over 20% in 2022, all while deleveraging our balance sheet with our strong cash flow. We firmly expect these results to set the stage for meaningful multiple expansion from our stock's current discounted levels.

As we have described, this strong improvement is a function of the sustainable realization of operational synergies from our multiple acquisitions and our focus on maximizing profitability through strategic selling and cost management strategies as we successfully execute our business plan. In addition to our company-specific opportunity, the housing market is supported by a long-running mismatch between limited new construction supply and growing household formations and evolving consumer needs. We believe the size and breadth of our portfolio, serving first-time buyers through luxury lifestyle consumers is well positioned to meet this demand in the coming years.

Lastly, I want to thank all our team members and trade partners for their commitment to serving our organization and customers during today's unique market conditions. It is their effort and collaboration that will allow us to achieve our goals, and I am endlessly thankful for their dedication. Now I'd like to open the call for your questions. Operator, please provide our participants with instructions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Carl Reichardt with BTIG.

Carl Reichardt -- BTIG -- Analyst

Hi, good morning everybody. Sheryl thanks for all the detail and Dave, I hope you enjoy your retirement. Congratulations.

David Cone -- Executive Vice President and Chief Financial Officer

Thanks, Carl.

Carl Reichardt -- BTIG -- Analyst

So the 22% gross margin guide for next year, Obviously, your guidance -- right now, your backlog is sort of like 1,000, 1,500 units of your backlog would flow into next year. So as I can understand your land costs are going to be, your stores are going to be -- what are you assuming on average selling price in terms of trend? Are you basically saying prices kind of flat today as similar communities open next year, we can get to this 22%? Or is there an assumption of price growth next year that's embedded in that margin guide?

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Thanks for the question, Carl. No, there would be no assumed price appreciation in our forward guidance. The market will determine price. And I would tell you, Carl, that as we look to the next few months, I would expect that we'll still see some pockets of opportunity to continue to move prices probably not as aggressively as you've seen over the last six, eight months. But I think you'll see some movement in more modest levels. But there's absolutely no appreciation assumed in the forward guide. It's really a function, all the things that we talked about in our prepared remarks.

David Cone -- Executive Vice President and Chief Financial Officer

And the same could be said, Carl, from a cost perspective, we're kind of looking at things, everything being equal right now. Obviously, if there's movement on price up, that helps. If it's cost down, that helps, that's what's embedded in our backlog right now because it's what we're seeing from a pricing cost perspective today.

Carl Reichardt -- BTIG -- Analyst

Okay. And then on average order price for this quarter, which was near $600,000, I think, Sheryl, you mentioned there was a product mix shift or active adult to some degree. Could you expand on that? I'm also assuming that because the orders in the Central region fell that excess is less of a contributor, which also sort of raised the average order price. So maybe just a little more detail on that.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

That's a fair question, Carl. I think it's a bit of both. You do have some mix shift, obviously, with the central order volume. But when you look at our active adult, our 55-plus lifestyle buyer, and you see the strength that we've seen. If you look at the mix in the quarter, I think sales were something like 25%. So that would be up a few hundred basis points, Carl. And generally, what we see with this buyer is higher lot premiums. I think I mentioned that in my prepared remarks, the options are generally two times what we would see in the company average. And as I look out in the backlog next year, within our lifestyle communities, their premiums are two times what -- their lot premiums are two times what we've seen this year or historically. We have an active adult President, operating team that's working with all of our markets. The Baron acceptance that we've seen in the is really taking hold, and we're really seeing great value creation. So excited about this consumer set and as it continues to grow as a portion of our portfolio.

Carl Reichardt -- BTIG -- Analyst

Thats super helpful. Thanks Sheryl, thanks Dave.

Operator

Our next question comes from Matthew Bouley with Barclays.

Ashley Kim -- Barclays Bank PLC -- Analyst

This is Ashley Kim on for Matt today. My first question is just on the 22% gross margin guide for next year. Just on lumber specifically, is that embedding a lumber tailwind? Or would lower leverage be flat?

David Cone -- Executive Vice President and Chief Financial Officer

Repeat the last part.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

It is embedding a lumber.

David Cone -- Executive Vice President and Chief Financial Officer

No, no, no.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Really not. Some moderation.

David Cone -- Executive Vice President and Chief Financial Officer

Yes. Right now, we still have costs that are flowing in, call it, 50% above where it's trading in the market today. I think we're going to see lumber peak Q3, Q4. It will hopefully start to come down in 2022, but we're not embedding that in there yet.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Yes. Actually, to Dave's point, we're certainly not expecting the peak that we've seen, but it's kind of early to be 100% where the prices go where the cost goes next year. What we're really trying to do is lean in and give visibility of what we're showing in our backlog, certainly through the first quarter and the opportunity that we see beyond that.

David Cone -- Executive Vice President and Chief Financial Officer

But 22% is something that we feel we can deliver despite some market movements. Obviously, we'll see -- you've got six more months to get to, call it, the Q4 call to firm it up, and we can give you a little bit more information at that point.

Ashley Kim -- Barclays Bank PLC -- Analyst

Okay. That's helpful. And then can you comment on what else you're seeing that's giving a read on fire demand, just given that the restriction sales case is, obviously, not telling the whole picture?

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

So sorry, Ashley, I missed part of the question. Can we give a read on what?

Ashley Kim -- Barclays Bank PLC -- Analyst

Just what you're seeing in buyer demand, just given that the restriction in sales base, is it telling all picture?

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Yes, absolutely. Ashley, we're managing our sales programs probably in 75% to 80% of our communities. Demand is still very strong by any historical standards. I would actually call early in the year somewhat frenzy and today, a very healthy market with tremendous momentum. But it is very difficult to paint a single brush across the U.S. You need to look at the geographies and consumer groups as we plan our sales strategy community by community. We saw pieces up with all consumer groups for the quarter despite the number of dynamics that we've seen in the marketplace.

We've seen a little seasonality. I wouldn't say it's typical. Demand is stronger than generally what you would see in the summer months. But we're seeing tremendous summer travel given everyone has felt somewhat caged up. I would tell you that consumer is a bit fatigue after levels of lotteries and that have been in the market, the Habas, absorbing some of the price appreciation. But looking forward, and certainly, as we've entered into July, we continue to see very strong momentum. You might say you -- might not have -- on a lottery, you might not have 50 people, you might have 20 people, but still tremendous demand. I would describe today as a healthier place and a more sustainable environment for the consumer, for the company, certainly for our trades to be able to deliver a good customer experience.

Operator

Our next question comes from Truman Patterson with Wolfe Research.

Paul Sadowski -- Analyst

Thanks! This is actually Paul Sadowski. I was wondering, on your gross margin improvement, can you slice that a little bit further and maybe break out how much is coming from the William Lyon synergies? How much is coming from current pricing dynamics and then how much is coming from the shift or more efficient construction processes, i.e., Canvas.

David Cone -- Executive Vice President and Chief Financial Officer

So are you talking about the quarter margin or the guidance?

Paul Sadowski -- Analyst

Actually both, if you could.

David Cone -- Executive Vice President and Chief Financial Officer

Okay. I'd say for Q2, that's really more around pricing power of the spec homes that we were able to sell and close during the quarter. And then obviously, there definitely was a component of that. where some of the William Lyon synergies were starting to take hold, Paul. And the vast majority of that, though, is really going to -- we'll see a little bit more in Q3, and we were able to take our guidance up for the year just because we're seeing that coming in a little bit maybe faster than we thought initially. But it's really going to be more so in Q4 as kind of that true inflection point for us around the synergies truly taking hold plus the various actions that we've taken that we talked about in the prepared remarks. That's the synergies from William Lyon being at that improved cost structure looking at floor-plan rationalization and value engineering, which was especially focused on the William Lyon plans. That allowed us to reduce costs without impacting the home's aesthetics, expanding our standard design package. That helps to reduce cycle time, which is big while also expanding our buying power on a concentrated set of SKUs. And then floor plan simplification, that puts more emphasis on narrowing our offering to the high-profit homes.

And then I also mentioned in the prepared remarks just our mix of new community openings, they're more weighted to markets that deliver some of our highest margins. So that's setting us up well for Q4. But definitely, we start seeing that full benefit when we get into 2022.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

And maybe I would just add to that, Dave. To your point, Paul. Canvas, we expect that to be more of a contributor as we look forward. In these are early days. We've rolled out across the country, as we said in our prepared remarks. But when we look at the margin trajectory in our -- early in pilot markets and just what we're seeing as we like it. And with that overstating the obvious part of the pickup you're seeing, Paul, is we came into the year with a tremendous backlog. And unfortunately, that backlog took a great deal of pressure on lumber as we saw peak numbers early in the year. So being able to lap that and move into some of the spec inventory as well as the price movement from our newest sales. That also gives us a great deal of confidence.

David Cone -- Executive Vice President and Chief Financial Officer

Yes. And as Sheryl said, we're lean in a little bit more on 2022 earlier than we normally would. And I don't want to get too much further out there, but a lot of the things that we're putting in place now that will impact next year. We actually think the accretion will carry beyond 2022 and into 2023. All things will be equal. And then when you couple that with kind of that inflection around the community count growth that we expect to see at the end of 2022, it bodes well for gross margin dollars.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

In '22 and really strong '23. Good point.

Paul Sadowski -- Analyst

Okay. I guess the second question, your SG&A ticked up a little bit in the quarter. What was the driver of that? And along those lines, with the strong demand out there, we know a lot of builders are actually cutting external broker commissions. Are you doing that? Are you cutting external or internal sales commissions? And if so, what would be the timing and magnitude of impact we could think of?

David Cone -- Executive Vice President and Chief Financial Officer

We'll probably tag on this one a little bit. From an SG&A, I mean, we were down sequentially up a little bit year-over-year. remember in Q2 of last year, we leaned pretty heavily on the William Lyon specs. So I would argue we push a little bit more closing through. When I look at this, we were able to meet our guidance on closings, but be it at the lower end of the range. So I think if we were a little bit more there in the middle, that obviously would have helped. So a lot of it is just around timing Paul, if you go back to our full year guidance, we haven't come off of that. We're still in that mid 9% range. So it really is just timing. You're going to see some stronger leverage, obviously, in Q4, just given the overall level of closings coming through

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

And then I'll pick up, Dave, on the broker piece. Paul, we have made some adjustments in the markets across the U.S. It's everything from adjusted on the actual fee to -- we've gone to a national program of just paying commissions on the base price. Once again, we came into the year with a very strong backlog. You've seen very little of that traction actually hit because that was all done early this year. And so it really would have only impacted a small percentage of our spec closings. The other thing that there's an honorable mention, Paul, would be our virtual environment as those closings start to come through the system, and we've had hundreds of closings that are completely virtually -- are completely virtual, excuse me, and they generally carry a lower broker participation, so you've got a lower participation and a lower fee that we get to look forward to.

David Cone -- Executive Vice President and Chief Financial Officer

And we are seeing leverage on the selling line. It's really the G&A and the timing of expenses. And then relative to the top line, which is impacting that deleverage.

Paul Sadowski -- Analyst

Thank you. Appreciate it!

David Cone -- Executive Vice President and Chief Financial Officer

Thanks Paul.

Operator

Our next question comes from Jay McCanless with Wedbush.

Jay McCanless -- Wedbush -- Analyst

Hey, good morning everyone. So on the fiscal '22 guide, just to be clear, the price cost benefit that's expected is coming from the land side. If I'm hearing you correctly, it's going to be less, I'm assuming lots were acquired in the William Lyon deal and probably more legacy Taylor Morrison land?

David Cone -- Executive Vice President and Chief Financial Officer

You're talking about the margin guidance? No, this is the...

Jay McCanless -- Wedbush -- Analyst

Yes, for '22.

David Cone -- Executive Vice President and Chief Financial Officer

This is the action that we're taking on operational enhancements. That's going to be the bulk of the driver. All the things that I just kind of went through they're all designed to either help enhance price, but just as much probably even more so is on the cost side, sharpening our costs to get them reflective of our overall size and scale. But the land component of it, I mean, it varies based on mix, but all things being equal, that gets a little bit more expensive every year. So you're typically -- on a typical year, you're setting that off with price and hopefully better efficiency.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Yes. And if you think about the residual, obviously, there's actually been some pickup in the residual as prices have moved up on the existing. But I would -- I completely concur with Dave that I would say generally same same, a modest pickup or modest savings, but that won't be the driver.

Jay McCanless -- Wedbush -- Analyst

Okay. All right. The second question I had, just any update on Christopher Todd and your single-family for round efforts?

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Absolutely. Jay, we've announced seven markets already and have in the process of planning two new markets, we're actually recruiting a land leader in Houston right now, and we'll be expanding our Florida operations as well. Each market is in a slightly different place. Phoenix is the most advanced with projects at multiple stages, Jay, from design to development to under construction and leases are expected to start by year-end. It is interesting, Phoenix has been somewhat of the melting pot of both VTR and SFR strategies, but there's been very little traction in our Christopher Todd model outside of Arizona. So we're pretty excited about operations that will be active in certainly at least seven markets by the end of the year.

Right now, we have approximately 25 to 30 deals at some stage from accepted LOI through owned land. Recognizing these deals are a little bit more complex and they take some time to entitle for our use. You won't really see an impact on the financials until we begin to sell assets, likely late next year. So as we think about '22 guidance, we'll get much more specific with you. And as we optimize, explore the best way to optimize the price. In '21 day, I don't even think there'll be -- the rental income would be so modest. I don't think you'll see anything.

David Cone -- Executive Vice President and Chief Financial Officer

Yes. And that's going to go in our men and other revenue line, as Sheryl said, it will be minimal. You won't really notice much of an impact this year. But as we move through the next couple of years, it becomes more meaningful.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Yes, I actually think you'll be pre-leasing this year, Jay, and then you'll really start to see the income next year.

Jay McCanless -- Wedbush -- Analyst

Okay, sounds great. Thanks for taking my question.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Thank you.

Operator

Our next question comes from Alex Rygiel with B. Riley.

Alex Rygiel -- B. Riley -- Analyst

Thank you.Quick question to follow up there on that last one as it relates to build to rent. How much capital have you invested into that business to date? And how should we think about sort of capital allocation into that business on an annual basis going forward?

David Cone -- Executive Vice President and Chief Financial Officer

Yes. The gross number, Alex, is probably $130 million, of which we've done some financing around that just to help from a return perspective, call it, 60% of that number. Going forward, it will be a few hundred million, but that's built in our overall land and development budgets. And still, even with that, we're going to throw off operating cash flow of $600 million or more each year.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

And once again, each of these projects will be individually project financed.

David Cone -- Executive Vice President and Chief Financial Officer

Yes.

Alex Rygiel -- B. Riley -- Analyst

Of course. And then coming back to your guidance, Clearly, your guidance suggests an incredibly strong fourth quarter for closings. Can you discuss sort of your confidence level on that and the visibility on this? And where there are risks and where there are opportunities for that?

David Cone -- Executive Vice President and Chief Financial Officer

Yes, you bet. You get to our implied guidance, it's between 5,100 and 5,400 closing. And we're still early in the construction cycle for many of the fourth quarter deliveries. But our team, they know it's ahead. It's a big fourth quarter. We know what is ahead. We're working with our teams daily on it, and we're discussing the obstacles and opportunities around the construction cycle every day to help deliver here in the second half. Our priority, though, is always going to be delivering a complete home.

Some of the biggest challenges, and I don't think it's anything new that you haven't already heard is really around the material shortages that are out there. Some of the biggest pain points right now are windows. We've seen lead times almost double there. Other things, just to name a couple more roof trusses and brick, that continues to be a challenge. But things come up every day around shortages. We work to kind of knock it out by the end of the day, only to wake up the next day and see yet another challenge. But it's the reality for us right now. And so far, we've been able to overcome many of those, and we're going to continue to push to the end of the year.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Yes. The only thing I'd add is, if you look at the past years, we would actually start houses probably well into August to deliver in the air. We have everything in the ground. But Dave's spot on, the supply constraints are real. Our teams are managing them every day. So with what we know today, we have a very big fourth quarter. We need conditions not to worsen. Hopefully, there's no impact from this COVID variant dropping crews because if that would create some more timing issues. But as we sit here today, we plan to get there.

David Cone -- Executive Vice President and Chief Financial Officer

Yes. And we're ordering materials a lot sooner than we typically would. And we're also stockpiling some materials where it makes sense as well.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Yes. We'll be the

Alex Rygiel -- B. Riley -- Analyst

Thank you.

Operator

Our next question comes from Alan Ratner with Zelman & Associates.

Alan Ratner -- Zelman & Associates -- Analyst

Hey guys, good morning. Thanks for taking my question. So I'd love to drill in a little bit on the uptick in starts really impressive getting to almost five starts per community in the quarter per month. I'm guessing that's not something you would tell us is kind of a new target run rate or is necessarily sustainable. But I'm curious if the current market conditions and strength has kind of caused you to kind of rethink that steady run rate in terms of starts per community or sales per community like you've talked about in the past. And given that success in the growth in starts, are you starting to pull back on some of those limitations on sales that you've been kind of putting in place over the vast majority of your communities?

David Cone -- Executive Vice President and Chief Financial Officer

Yes. I'll jump in on the starts, maybe Sheryl will hit the sales side. So Alan, we continue to align our starts with the order pace. Our Q2 starts, they were probably a bit inflated, and we had significant weather challenges in Q1. Not to mention, we had a large backlog from last year and that we had to get started. So that was a little bit of a catch-up, coupled with the strong pace that we saw Q1 and most of Q2. Q2 was -- as Sheryl just mentioned, it's a big quarter for us to get everything into the ground to help us deliver for the year. And that's what took us to that cadence of about 4.8 starts per community. This should normalize probably somewhere in the high three range for starts per community. I would argue this is probably a healthier start pace for us, especially given the supply chain challenges that are out there right now.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Yes. So I wouldn't take it, Alan, as a read on the market that we're slowing it down. We're just going to try to get to a normal sustainable pace, which, to Dave's point, probably high 3s. Q2 was unique on a lot of different levels. As far as the sales front looking forward, we'll continue to deploy different strategies by community, Alan. I would expect some communities will go back to more traditional releases. Some will continue to still be managed. We are still holding specs in some communities until they get further into the construction cycle. Having said that, there's others that we're releasing at starts. We really important to understand the existing market conditions and the strategy of the other builders and potentially get ahead of any sort of glut of inventory that's being held back today. A lot of folks have mentioned not wanting to keep a customer in backlog any longer than you have to. So that certainly plays into it. So there's a number of things the teams are managing. But the momentum and the strength continues to be quite good.

Alan Ratner -- Zelman & Associates -- Analyst

Got it. I appreciate that color, guys. Second question, I was hoping -- I know this is tough, but I was hoping you can maybe provide a little bit of clarity just on where we should think about your price point going order price that you mentioned, Terea maybe impacted a little bit by mix in the quarter. but it's almost 100,000 above your delivery price right now. And I know that's been kind of moving around here. So where do you see, as you look at your community count and some of the growth coming through the pike, where do you see that price -- average price going over the next one year, 1.5 years assuming price appreciation kind of normalizes as you anticipate?

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Yes. As we mentioned, I certainly think you're going to see price up next year over 2021. My instinct is, given the mix of the communities in '23, you'll see it settle back a bit just as I look at the new communities that are coming online. So I think '22 probably provides the peak, Alan. I mentioned, I think, a couple of times that what we're seeing in lot premiums, all of -- any of the competitive environment that we've been, we've really steered the buyers to lot premiums versus base price because I think we've all been to a place where you don't want to see any movement backwards on base price. So that's feeding some of the price appreciation, certainly a great deal of what you saw in the selling price in Q2. As that levels out, I would expect that overall pricing -- once again, we're taking price in some communities. We're just not taking it at the level that we took it earlier in the year.

David Cone -- Executive Vice President and Chief Financial Officer

Yes. On our overall ASP from an order perspective, I mean it's largely rate, not a lot of mix. I think you get into 2022, we might seem to explain a little bit more of a factor as well.

Alan Ratner -- Zelman & Associates -- Analyst

Great! Appreciate it guys, thanks a lot!

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Yes. Sorry, I'm going to mention why there's one other thing that I think does play into price. As we look at the consumers' behavior today, and we look at our backlog, square footages are still going up. They're spending more in the design center. So it's not just on lot premiums. They're buying a bigger house on a home site that meets their needs, which I think says a lot about their ability to qualify and what's important to them. When we look at our spec inventory that we're putting to market, we're actually reducing a square foot each a little bit to try to continue to serve that more affordable consumer. So that's why I think you'll get this kind of blurring of our mix in overall price, and I think you'll see it settle back a bit.

Alan Ratner -- Zelman & Associates -- Analyst

Make sense. Thanks a lot!

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Thank you.

Operator

Our next question comes from Mike Dahl with RBC Capital Markets.

Chris Cloud -- Analyst

Hi, this is actually Chris Cloud on for Mike.Thanks for taking my questions. I just want to go back to the selling pace outlook for the back half of the year. When can we see absorptions kind of return back to your more normal two- to three month level Clearly, at three.four per month we saw a side step down from 1Q. So I mean, based on what you're seeing in July, do you think this is going to continue into next quarter? Or do you see more of a structural improvement in your selling base?

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

I think -- if I look at July -- let me start there. If we look at July, certainly, the month is not done yet, but I expect that July will be relatively consistent with Q2. When we look at our historical paces of low to mid-2s, I don't think we'll go back to the two to 3. But I do think that something more in the low to mid-3s becomes more realistic long term. So I think in the back half, you'll see kind of that normalization, mostly because of the managed piece we're talking about, but I think you'll also get some seasonality in there.

David Cone -- Executive Vice President and Chief Financial Officer

And if you look at 2020, a bit of an anomaly year with the pandemic and what we was slow, then it picked up. If you compare back to 2019, you also have to remember we're a different company. with acquisitions, especially More affordable, higher paces, more West Coast geared and some aspects as well, which typically have a higher pace. So I think there you're also seeing just the structural shift of the business.

Chris Cloud -- Analyst

Understood. That makes sense. And for my follow-up, I was wondering if you guys are seeing if you have a way of tracking whether there could be any kind of overestimation the current breadth of demand out there. I mean, for example, you gave the example of seeing 20 bids in the lottery system instead of the 50 prior. Is that a dynamic at all of buyers kind of hedging their odds and placing bids across multiple communities. Is that something that you're hearing or seeing out there or contemplating at all in your outlook?

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

As I mentioned, I -- we're managing the sales programs in 75% to 80% of our community and the demand is quite strong by any standards. But it has normalized from the frenzy pace that we saw, I would say, in the first quarter and moving into the second quarter, I actually think we're in a much better place to provide a better experience for our customers. It's been very difficult for the consumer in today's environment. They have been participating in multiple lottery there's actually, I would tell you, early in the year, a decent amount of fear about being able to secure a home.

So I like where the business is going. I like the fact that we're managing our pace to match our construction cycle. We can provide a better experience to the consumer. There is still a tremendous amount of demand because I think what continues to feed this as we are undersupplied as a country. I mean millions of units. So I think we've got some runway ahead.

Operator

Our next question comes from Deepa Raghavan with Wells Fargo.

Deepa Raghavan -- Wells Fargo -- Analyst

Hi, good morning everyone. Thanks for taking my question. Sheryl, I'm going to tag on that demand question that got asked. Would you say it's the traffic that is now slower, not the demand and that demand is still as strong and not necessarily stated versus early in the year? Or would you say there have been some marginal impacts for whatever reason as in maybe this buyer fatigue. There's a lack of availability of affordable houses, etc. So how would you -- how do we think about this slowdown in the number of bids, etc, that you get, but then the backdrop is still pretty strong. So is it more like a traffic versus demand -- dynamic? Or is there something more happening?

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Yes. As I said, Deepa, I think I do think it remains very strong. We just have to understand what we're holding ourselves up against. And if we consider the frenzied environment, we know that's not a sustainable environment. Traffic per community is actually up. I think year somewhere around 10%. Our conversion rates are up. When I look at our web traffic for our divisions, really all indicators are strong. Our web traffic is up. And now when our web conversions are up tremendously, which really surprises me considering that all communities are open and they weren't a year ago. So I think you have all the things we talked about. I think you do have a little bit of fatigue. I think you do have a little bit of seasonality. And so we have -- we see two weeks where people pull back, then they're right back at it. So I think this is just a good strong normalization. When you think about affordability, we've actually seen sequential strength in our buyers.

The way I try to look at it, Deepa, is if I take a $400,000 house a year ago, and that's 20%, just using the generic numbers that have been posted, the buyer's overall payment is modestly higher today because it's a a buyer that's able to put more down and their over credit profile is strong or the ratios are better, their incomes are up. So their overall monthly expense is relatively unchanged, so they're able to absorb the price movement. In fact, when I look at our backlog, they really are absorbing these increases. And today's buyer has even a greater spread between the qualifying income. That would be the income we use to qualify them and their total household income from what they had a year ago.

And then as I said, they're buying bigger houses, putting more money into it. I think the buyer is in pretty good shape. The FHA buyer might be slightly different. We haven't seen the same lift in income. The ratios might be a little tighter, but they still are in a better place than they were a year ago with 500 basis points of room. So I think I would caution us not to point to one thing because I think we have a very strong, high demand market. But obviously, you're going to see movement from month-to-month and quarter-to-quarter. And I think using last year's kind of peak paces. I think about our June last year, I think, it was our peak the company has ever seen, that's 4.7%. If we try to qualify that as a normal, I think we'll disappoint ourselves.

Deepa Raghavan -- Wells Fargo -- Analyst

All right. Got it. That's helpful. My follow-up is on gross margin. You raised the 2021 guide on gross margins toward the 20% upper end, 19.5%, etc. Does that already incorporate some of the cost action benefits that actually play much strongly into 2022? Or is that raised -- the current way is more just from pricing actions this year, etc?

David Cone -- Executive Vice President and Chief Financial Officer

Deepa, it's both. I mean, on the cost side and the enhancements that we're making, yes, it's in there. I would describe it as kind of early innings as it's coming through in Q3 and Q4. Relative to our expectations, it's coming in a little bit faster, a little bit more meaningful than we thought. So that's the great news of it. but also pricing is playing a factor that prices have been staying ahead of cost to date, which is also a very favorable thing.

Deepa Raghavan -- Wells Fargo -- Analyst

Okay. That's helpful. But would you say that 22% that you're giving for next year, is that the full run rate of all your cost actions? Or what is the run rate of all of that?

David Cone -- Executive Vice President and Chief Financial Officer

Well, like I said, we're six months out, Deepa, from finishing this year. We'll give you more color over the next couple of quarters as we kind of firm things up. But we will be at a run rate around the synergies sometime in Q4 on an annualized basis, really more taking hold in Q1. But we think that there's additional enhancements that we're going to be able to make in '22 that will also benefit 2023. But like I said, give us some time, we'll firm that up.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Yes. Deepa, we would not typically give this type of forward guidance. But based on the stock price, we just believe there's a true misunderstanding of the trajectory of the business. I have an appreciation that we haven't provided a quarter with that real acquisition or integration noise, onetime costs for nearly three years. But we've always said this is the pivot point at 18 months after an acquisition. And now that we're approaching that time period, it probably feels a little longer with how the pandemic distorted everything. But we believe it's just time to put that stake in the ground and give everyone better visibility. But we're really leaning in because it's pretty early. So as we get greater visibility in the coming quarters, we'll continue to update.

Operator

Our next question comes from Tyler Batory with Janney.

Tyler Batory -- Janney -- Analyst

Good morning. Thanks for taking my question. Just one multipart question for me. In terms of the new land financing vehicles. Are the return profiles or the underwriting metrics are the hurdles different than what you were using before? And then perhaps more broadly on the land market generally interested in what you're seeing on the price side of things? And then also, there are a number of builders that are really trying to ramp up their land position. There are some others that are a little bit longer in terms of their land position. I mean how comfortable are you with where you are right now looking toward 2023. Would you expect a substantial step up in your spending into next year to really ramp the business in 2023 and beyond?

David Cone -- Executive Vice President and Chief Financial Officer

So I'll pick up on your land hurdle question relative to the financing, Tyler. So have our hurdles change? No, we're still underwriting in the same way. Obviously, it's a unique demand. Sure, we'll talk a little bit low pricing here in a minute. But obviously, ASPs are different, costs are different. We incorporated a lot of sensitivities to help us understand what is a good deal. The financing vehicles themselves, those are designed to actually enhance the overall return of a project, thus enhancing the overall return for the company. There is a little bit of a gross margin drag that comes with that. That's the trade-off to get the better return. But we've been talking a lot today around all the various operational enhancements that we're putting in place. We feel they're going to more than offset that drag there. So this is really a way to lighten the balance sheet, increase our option lots and really enhance returns over the next many years.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Yes. So there's two vehicles, as we mentioned. One will kind of act like a land banking vehicle and the rates that we've been able to put in place, honestly, are as competitive as anything we've ever seen before. The other one is more of a venture. It kind of acts like a JV, and that will be for our larger assets. Each deal will be underwritten individually by both parties. So kind of consider a capital allocation tool for us, and we'll -- that will be available when it makes sense. It will allow us to capitalize on additional growth opportunities. while importantly mitigating risk at this point in the cycle. In the first 30 days of putting these vehicles in place, we expect to put something between $250 million and $260 million of L&D spend. I don't think this will be a monthly run rate for us, but we've actually been waiting to get to the first closing. So we're delighted, to Dave's point, on what this will do kind of the long-term return trajectory of the business.

As far as land pricing and the competition in the market, I would tell you it's about its fears of any time I recall. The sellers are seeing the price movement in housing today, and I think they have higher expectation on both cost terms. I'm seeing some things out there that are -- we need to continue to retain our kind of underwriting standards. We're seeing things that are getting closed very quickly without maybe proper due diligence, maybe closing earlier in the entitlement. I would tell you that we're going to retain our cadence and approval regimens, not adding appreciate really hedging with sensitivities on cost and pace. So it's tight, but it's always tight. And the teams are actually putting some very good deals on books. So when I look at some of the stuff in the pipeline today, actually across the business, it's high quality.

Operator

Our next question comes from Alex Barron with Housing Research.

Alex Barron -- Housing Research -- Analyst

I think last quarter, you discussed the increased amount of out-of-state buyers. I was curious if you guys have measured what it was this quarter versus last quarter?

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Alex, we have and -- we have continued to see traction. I'm seeing if I can actually grab that schedule. We might have to get back to you with the real specifics. But as I said in my prepared comments, we've really seen a strong surge of California buyers in both exit in Arizona, in Colorado, really strong in Nevada. And then we've seen a tremendous surge of kind of northeast into our Florida business, maybe even the Carolina when I -- I mean we're happy to get offline with you because we have a tremendous amount of detail both on our shoppers and buyers and the trajectory of that out-of-state business. It's pretty meaningful.

Alex Barron -- Housing Research -- Analyst

Okay. Good to hear. The other thing I was curious about is, what do you feel is a greater concern or shortage at this point, the material side of things or labor to get the homes bill?

David Cone -- Executive Vice President and Chief Financial Officer

Yes, you can't have one without the other.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

That depends on the market.

David Cone -- Executive Vice President and Chief Financial Officer

Yes. It depends on the market. It depends on where they are in the construction cycle. I would say it this way, Alex. I think we're more accustomed to dealing with the labor shortage as an industry. I think the level of material shortage, that's new for us. That's something that we don't typically deal with, and it's been a change but they do still go somewhat hand-in-hand.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

I'd almost say it like this, Alex, Dave, I don't know if you agree. If we had the materials that were needed across the industry to meet the the supply that's being brought to market, you probably have more of a labor shortage.

David Cone -- Executive Vice President and Chief Financial Officer

Right. Yes, true, yes.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Because we just trade-by-trade, they're not able to meet the demand because of some of the shortfalls. And in logistics, you've got this issue with commodities. You've got a tremendous issue with logistics, and that's everything from containers at the ports that are creating some of the pain points trucking and drivers. So there's a lot of things that are making the material side of it, very difficult and the labor is trying to keep up with what they're getting.

Deepa Raghavan -- Wells Fargo -- Analyst

Okay, thank you so much.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Thank you.

Operator

There are no further questions. Please proceed with any closing remarks.

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

Thank you very much for joining us for our Q2 call today. Have a great day, and look forward to talking to you next quarter.

Operator

[Operator Closing Remarks]

Duration: 71 minutes

Call participants:

Mackenzie Aron -- Vice President of Investor Relations

Sheryl D. Palmer -- Chairman, President and Chief Executive Officer E

David Cone -- Executive Vice President and Chief Financial Officer

Carl Reichardt -- BTIG -- Analyst

Ashley Kim -- Barclays Bank PLC -- Analyst

Paul Sadowski -- Analyst

Jay McCanless -- Wedbush -- Analyst

Alex Rygiel -- B. Riley -- Analyst

Alan Ratner -- Zelman & Associates -- Analyst

Chris Cloud -- Analyst

Deepa Raghavan -- Wells Fargo -- Analyst

Tyler Batory -- Janney -- Analyst

Alex Barron -- Housing Research -- Analyst

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