Thank s for joining in the PulteGroup discussion. My name is Buck Horne. I'm the Raymond James housing analyst and covering home building, residential REITs, timber, and an assortment of other companies related to the housing sector. Lots of interest we've gotten from a multitude of investors about what's happening in the housing market, and particularly with home builders. Mortgage rate volatility has been at an all-time high for the past year or so, and that has only continued to start the year. Of course, we've got some very encouraging data points. You know, mortgage rates unexpectedly fell back to 6% or so in January, and all of a sudden, buyers seem to have come back in a big way. That was really good news for a lot of builders.
Of course, now we turn the calendar and it's March and mortgage rates are back to 7%. We have a lot of question marks now. Can this momentum continue? We'll see. I think they're wondering what they can say to us through the last quarter, nevertheless, a lot of interest and a lot of things happening in the housing market. Let me turn it over to Bob O'Shaughnessy, CFO of PulteGroup.
Thanks, Buck. Thanks everybody for joining us here today. See if I can get this going here. All right. What I'll be walking through this afternoon is a little bit about us, just an overview of the company. Walk through the overview of the year that we just completed. It feels like yesterday. It's now, to Buck's point, it's almost, you know, the end of the first quarter. Maybe given the volatility and evolving nature of the market, give you a little bit of an update on how we're thinking about the market and how we're behaving. I'll leave some time for questions at the end. Looking at the company, one of the most broadly diversified home builders in the country.
You know, you can see on the map, we cover 24 states, more than 41 different markets in those states. Most of the significant MSAs in the, in the country. You know, certainly coastal representation states for the high growth as well as in the Midwest, where we've always had a pretty active presence because of our founding being in Michigan. As we go to market, we have three national brands. They target the first-time or entry-level builder group, which is our Centex brand, the flagship Pulte, which is move-up, and then active adult, which is our Del Webb brand.
We also operate several regional brands which have strong regional market recognition, you know, among them being DiVosta, which is a targeted builder here in Florida, and John Wieland Homes, which is a brand we bought back in 2016, which has a strong second move-up presence in the Southeast. We obviously are also pretty broadly diversified from a pricing perspective. You can see here, anything from under $300,000 to well over $1 million are the price points that we touch. Just for perspective, if you look at the mix of these, roughly 40% of them would be in price bands that we would consider entry-level. About 35% would be that move-up buyer, then about 25% being the active a dult.
As we think about how the company operates, our strategic focus and our operating philosophy, really, for over a decade now, has been to seek to drive higher return or high return through cycle. The way we seek to do that is through a superior home building profitability profile. Candidly, that all starts with land acquisition. We have a risk-adjusted return-based acquisition methodology that seeks to, on balance, keep our own lot position relatively light. We try and have about three years of owned and three years of optioned land. Currently, we have 48% of our land book being optioned. It had been about as high as 55% last year, but we walked from some options given some of the volatility over the back half of the year. That's at 48%.
Broadly, we are a build-to-order builder, particularly for our move-up and active- adult buyer. We are introducing more spec into the market today. Our Centex or first-time flag has been largely a spec build model in general. Given the rate environment that Buck referenced, consumer acceptance of things that are gonna deliver in relatively short order, require some spec building, and we've done that. We also seek to be an efficient builder. You know, mentioned this in a couple of meetings this morning. You know, we have a commonly managed floor plan platform. If you think about that, it's we seek to build the same plan as often as we can. Today we're looking at fiscal 2022, we had 29,000 closings.
We have about 1,000 floor plans, so we're building each one about 29 times. You compare that to when we launched this program back in 2012 when we did about 15,000 units and we had 3,000 floor plans. We were only building each one five times. That repeatability for the trade base allows us to buy and build more efficiently. We go to market a little bit uniquely in that we have a standard or not a standard, but we have a base price for our house that's competitive in the marketplace. We ascribe a value to each lot that we're building on.
On the build-to-order business, we charge a fair price, but are seeking to get paid for the options that people choose as opposed to the ones that we choose for them. When you kind of shake all that together, if you look structurally, we've enjoyed a richer margin profile than just about any other builder for years. That obviously exists today. We can cover that when we're talking about the prior year. Just to highlight, we are expanding into new markets. I'll spend a second on that in a minute. Looking at 2022, I can honestly say it was a terrific year from a financial perspective. We obviously delivered 29,000 homes. That was up 1% over the prior year.
Our revenue of almost $16 billion was up 18% over the prior year. That included a 17% increase in price, that allowed us to generate margins approaching 30% for the year, which is up almost 300 basis points over the prior year. All of that led to a 48% increase in our earnings per share to almost $11 or just in excess of $11 per share. Really proud of the fact that on top of that, our return on equity improved almost 33%, which is a record for the company. It allowed us to do several things. One is to continue to invest in the business. We invested $4.5 billion in land and land acquisition that will serve as community growth for us going forward.
We returned $1.2 billion to shareholders in the form of dividends and repurchases. Dividends have been an increasing rate over the last several years for us. Annual spend is about $140 million. What that should tell you is we've spent about $1 billion or $1.1 billion on share repurchases last year, just under 10% of the company float. If you look over time, since we introduced the share repurchase program, we've actually bought back almost 50% of the company stock in the last decade, all while managing a very manageable leverage profile. Our debt-to-capital ratio on a gross basis is under 20% today. We have a long-term target of operating between 20% and 30%, so we're very comfortable. It's not a mandate.
We won't necessarily borrow just to get into that 20%. On a net debt-to-cap basis, we're sub 10%. The flexibility that the business affords and the performance allows us to think about any and all of these capital allocation priorities going forward. A couple of other successes for 2022. I mentioned we've expanded into five markets, Denver, Sacramento, Columbia in South Carolina, Portland in Oregon. Today we really do touch just about every MSA of significance in the country, with the exception being probably Salt Lake, which we are working towards trying to enter. Happy to report that we've opened our second off-site manufacturing plant. We, we acquired a business in Jacksonville a few years ago, and we've been seeking to ramp that across the country.
At some point, we expect to have somewhere between six and eight plants open. We opened our second one in Florence, South Carolina. This is wall panels, floor cassettes, truss manufacturing that then gets trucked over to the job site and assembled on-site. We're excited about that opening. And then equally excited about being named a Fortune 100 Best Companies to Work For. We were actually 43rd on the list. Super proud of that, especially based on it being based on the feedback of our employees. You know, I'd be remiss if I didn't mention that as for all the good things that happened in 2022, and there were many, it was a challenging time. You know, Buck talked about it. The Fed raised rates seven times. We saw mortgage rates effectively double during the year.
New and existing home sales actually declined. Single-family starts dropped 11%. You know, a little bit of sand in the gears, for lack of a better word. Interestingly, that volatility has pushed people to want to get into their homes a little bit sooner rather than signing a contract and taking delivery eight or nine months later and all the exposure they have to rate risk around that. You know, interestingly enough, as we look at our business, we've been running at about 35% to up to 40% speculative inventory starts. 60% of our sales, that's 60% of our sales during the fourth quarter were actually spec. And so we've been willing and starting a little bit more, especially as the supply chain is improving but still a little bit ragged.
And so you know, as we approach the coming year, and maybe I'll switch to that, how are we gonna behave? We are a production builder. And so what you can and should expect from us is that we're gonna continue to develop the lots that we own. We're gonna build houses on it. We're gonna find price. On our most recent call, Ryan, our CEO, mentioned we're not gonna be margin proud. Our goal is to produce and sell homes. That allows us to keep our production machine working, our overhead efficiencies. Even for the consumer, as they walk into a community, if they see trades and activity, that sends a different message than if there's nothing happening. That's what we'll be doing.
We did not give an annual guide for closings, but we did give a production universe guide. That's 25,000 units, which would be down. If that were our closings, that would be down from the prior year. Worth highlighting, that's including 18,000 units in production in the year, plus 7,000 units that we expect to start and complete during the year. I'd highlight that there are opportunities to influence that. If the market is good, we will start more homes. If the market is weaker, we might actually reduce our start cadence. With the supply chain being that it is our actual cycle times are elongated relative to historical norms. We're at 166 days today versus a historical norm of 92 days. So we'll be seeking to actually carve time out of our cycle times.
All of those things can influence that available closing universe for fiscal 2023. We will be paying attention to the market as opposed to being mandating the total number that we're gonna build. Similarly on land, you know, I mentioned we invested $4.5 billion in fiscal 2022. We're actually managing our pipeline aggressively in the, in the market conditions we face today. So our total lot position is actually down 8% versus last year. We walked from 52,000 optioned lots during the second, the third and fourth quarters of last year.
We had a cost associated with that of $64 million, but from my perspective, that's a relatively inexpensive form of insurance against what would have been $2.1 billion of land acquisition spend, and then development spend on top of that, for deals that just from our perspective, didn't pencil anymore. We expect to spend $3.3 billion in fiscal 2023. That's about 30% down from the $4.5 billion last year. I will highlight that our acquisition spend is really where that change is happening. Our development spend is gonna be about the same as last year. It'll represent 65% or 70% of our spend this year. We'll pay attention to the market.
We'll wanna see a little bit better value proposition before we were gonna increase the spend, but we have the financial flexibility to do that. Notwithstanding the decrease in spend this year, we will be increasing our community count in fiscal 2023 by between 5% and 10% over the prior year. Thinking about capital allocation, it drives a lot of the decisions we make in the company, and hopefully this is positive in your perspective. We're not changing our approach to capital allocation at all. Our first and primary objective is to invest in the business at high return. We'll see how the market behaves, how sales come, how the land market operates, whether there are increases or decreases in pricing. We'll be opportunistic, I think there.
We will continue to pay our dividend, and you can and should expect to see us in the market repurchasing our shares, all while trying to manage against that modest leverage profile that I talked about. You know, maybe taking a step back, you know, longer term, we remain bullish on the market. You know, we are of the view that the strong demographic trends that have aided the past couple of years will continue for years. Both ends of the barbell, the Gen Xers and the millennials. The millennials are certainly coming into age where they're ready to buy houses, and we've seen some activity and stepped-up activity over the last several years. You know, we've got a unique kind of period in time from a supply and demand perspective.
We have been under-building, in our perspective, the housing need in this country for a decade. Normal for us in terms of total new should be about 1.5 million. That's including multi-family, 1.5 million. You can see that we just recently got back to that level in the last year or two, and structurally, under-built for years before that. We think that that, coupled with the fact that folks are in mortgages, 90%+ of the mortgages today are sub 5%. And so people have a, you know, challenging decision to make to sell their home because they're gonna have to go out and pay for a little bit more. We think that that resale market is gonna be relatively tight for the foreseeable future, which again, provides an opportunity for us.
I mentioned this, you know, kids are actually finally starting to move out of their family's houses. If any of you have kids at home, hopefully you can enjoy the benefit of that. In conclusion, you know, great year in 2022. Really strong position from an operating and financial perspective to deal with whatever the market delivers to us in 2023. We're gonna work to make sure that our production machine is as efficient as it can be to reduce house construction costs, to reduce land development costs, as well as to just reduce overall cycle time, which would be, you know, the potential to be significantly accretive to our returns, and continue to invest capital the way we have. With that, I will stop and see if anybody has any questions.
I think I'll fire a quick one at you. There's a lot that's not in your control, but kinda now seeing the environment where mortgage rates have gotten to that 7% threshold once before, right? We had that October- November timeframe. What lessons have you learned from that period if we're gonna stay at 7% for the foreseeable future, hypothetically? What did you learn from fall kind of, you know, transitioning or apply to the springtime in terms of changes to operations, incentives? What do you think you've learned from the past couple?
Yeah, it's a great question. I would tell you, it's more about the means by which we implement incentive packages. You know, it had been a while since we needed to think about rate support to the consumer. You know, we actually launched in January. A learning coming out of the third and fourth quarters as rates really kind of jumped, that, you know, for some consumer, the ability to get them into a 30-year fixed rate instrument, and it didn't have to be a certain number, but just giving them certainty at that rate really benefited them. You know, we launched in January a 4.25% rate. It moved up to 4.75%, and now we're at 5% or 4.99%.
Yes.
But it's interesting 'cause not everybody takes it. What it does is it starts the conversation. It gets eyeballs and starts the conversation. We've got a tiered approach that says, "Okay, you know, today you can get 4.99% if payment is your primary focus, or you could do 5.25% or 5.5%." And then what we've done, I said, "The money that would be available or would've been spent to buy to the lower rate, we can apply to down payment or some other upgrade on the house." And so we're letting the consumer actually choose that. You know, starting the conversation saying, "Here's, here's a value indicator to you. Now you tell us what's important," has really proven to be pretty effective.
How would that 4.99% be a one or two-year kind of intro rate?
30-year fixed.
30-year. Buy down for the entire 30.
Yeah, it's not inexpensive. The other thing is we were offering incentives anyway, and what we've done is kind of oriented the... We've oriented the sales team to say, "Okay, here's the pot of money that we have available. Use it in whatever way serves the customer best.
Mm-hmm.
And so if it's rate buyback because they're totally focused on payment, because hopefully you can appreciate if you spend, I'll make up a number, $10,000 on incentive to buy down rate, it has a much more 4 : 1 probably impact on the monthly payment.
Absolutely.
V ersus dropping price. Everybody's motivated by different things or maybe they don't have the down payment. You know, what we're trying to do is start the dialogue about what's important to them. What, you know, what hopefully it translates into is not necessarily... Or I should say it this way. We haven't said, "Your incentive package was X, and now you have this on top of it."
Right.
It's just, we've just put another arrow in the quiver.
Right.
Of the sales force to say, "Here's something that you can help when you're working with the customer."
We've heard it across the industry. I mean, the rate down buy or rate buydown program seems to have been the lever that seems to have had the most effectiveness in this environment. Just hypothetically, as you run this through your mortgage company, you know, what is that cost for 100 basis points? If you're gonna buy it down for 100 basis points, what kind of gross margin impact is that to you guys?
About 4%.
About 400. Rough, rough math, 400 basis points.
Yeah.
But you're giving I mean, 100 basis points off the mortgage, that's like a, that's 10% purchasing power.
Right.
O r the equivalent of a 10% markdown on the price of the house.
It's a big differential. That's why interestingly, not everybody goes all the way on rate 'cause they say if there's, you know, if you're spending $8,000 on that and you would spend $8,000 on something else, they feel like that's terrific because they get value on the mortgage payment and on the house.
Yeah. Yeah. You guys commented a little bit, I think on your call about January trends. January's seen some bounce back in demand. Certainly other competitors have noted January was much better than kind of December, and there seemed to be some follow-through from others being reported about February, at least the early part of February. You've got to cross-segment into a couple of different price points and consumer groups. Was there any noticeable difference in the demand coming back in January between consumer groups, or was it pretty standard?
It was strong across the board. I would tell you geographically, the West Coast was probably the slowest on a relative basis.
Mm-hmm
In our universe. And I think, you know, it's a function of price and the rapid rate of increase in the past. Having said that, you know, again, even there, we saw an improving picture October to November to December and into January, even in those markets that have been a little bit more challenged.
Any questions from the audience? Yeah?
Just on you mentioned supply chain remains [audio distortion] .
Yeah, I don't know that I'd say anything is quite deficient. Sorry, the question is, has the supply chain hits a little ragged, where has it improved, where has it not? What you're seeing now is more episodic than systemic, honestly. You know, I don't think there are any real systemic gaps in the supply chain. You know, things like we have been experiencing windows and cabinetry having to order 24, you know, weeks in advance, whereas our historical norm was four weeks. The one thing I might point out that's an issue that I don't see a simple solution to is power. Some of the electronics that you need to power a community, I'm not talking about the house now, but to power a community is in short supply.
Without getting into a lot of detail, the potential stakes of the steel that needs to be used for that. There isn't enough of it, honestly, to make that which it needs. You know, the government has mandated. You know, that's one that I think will be around for a while. Otherwise it is more episodic, I would say, truly systemic. And so you know, we've got programs in place that are designed to, you know, drive our much-elongated cycle time down quarter by quarter by quarter. It'll take a little bit of time and effort, but certainly we've got the plans in place to try and do that.
Yeah. Rick?
[audio distortion] . What's your exposure in R and TR?
Yeah. The question is what's our exposure to build for rent, for short-term rental and for single-family rent.
Single-family.
Yeah. Not both. Yeah, we announced a couple of years ago a relationship with Invitation Homes, which was designed actually for us to widen the aperture for land acquisition. What we wanted to do is build a business with that space that would be 7,500 units over five years, so call it 1,500 units a year, and we are on track to do that. Our idea was actually to partner with them, and create an opportunity for a community that may not have met all of our underwriting standards read too big to say, "Why don't you partner with us?
We'll use our expertise to, you know, entitle, develop, and build the houses. And we'll deliver them to you on a, on a schedule that would allow us to generate returns while we, you know..." So we bifurcate the community. Half of it would be for them, half of it would be for us. We were successful on that front. We've also got relationships with other, single-family rental enterprises, and where we are today is probably on the shorter end of the curve. This is, you know, their interests today are typically within units that can deliver in this next six months as opposed to longer term, which is the type of stuff we're doing with Invitation. We have an appetite for both. You know, we've indicated we think maybe it could be about 5% of the business.
We don't want it to be that much more than that. We don't have an interest in owning those communities and renting them up. We think that the capital cost of that is too significant. You know, we also don't do a lot of spec sales. You know, we will make a couple of units available quarter by quarter, but we're not putting a big book out every quarter for people to sell or for those folks to pick over. The logic being, we don't have that many finished units on the ground, we'd rather sell them retail.
All right. Yep?
I'll go ahead.
Yeah.
Can you talk about the momentum, prospects of housing market? Talk more about buying.
Longer term prospects on the housing market.
Okay. So again, you know, demographically, you've got two big groups moving through a buying phase in their life. The folks that are becoming active adults who are gonna be downsizing, which we think is a great opportunity for our Del Webb, and similarly, the millennials who are now in prime purchasing age. You couple that with the fact that we've underbuilt, we've got a shortage of supply from a new perspective in the country generally. Our belief is that 1.5 million is the number of new starts, that's including multi-family, that the company needs just for either replacement and/or population growth. Since 2011, we've underbuilt that, there's a cumulative deficit, and depending on how you look at the math, of 2 million-4 million units.
Literally in the last year or two is the only time we've built to that 1.5-million-unit level. We think we've got a relative undersupply there. You add on to the fact that the existing space, which is always the largest competitor that we have as a new builder, is somewhat undersupplied. You know, months' supply is low across the country in just about every market you look at, in part because people are sitting there with a 2.75% or 3% mortgage, who, if they trade out of that house, are gonna have to pay more for their next house at a higher mortgage rate. They're not incented to do that.
You've got folks now as they age, you know, their family expands, they get married, they're moving, they have a need, and they just don't have that much inventory to access. Again, is a good opportunity for us to sell to those people. I don't think the entitlement background and opportunity in this country is getting any easier. You know, it's harder to get land entitled, so the specter of a bunch of new inventory coming is pretty limited.
All right.
Just to name a few. Yeah.
I'm sorry.
No, thanks. Go ahead. You wanna finish the talk?
Nope.
Okay. No. Thank you much. Appreciate you joining us for this. Thanks to Bob and Jim. We have a breakout downstairs if you wanna talk more housing and home building.
Thanks.