Greetings, welcome to the Tri Pointe Group second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Doug Bauer, Chief Executive Officer. Thank you, sir. You may begin.
Good morning, and welcome to TRI Pointe Group's earnings conference call. Earlier today, the company released its financial results for the second quarter of 2020. Documents detailing these results, including a slide deck under the Presentations tab, are available on the company's investor relations website at www.tripointegroup.com. Before the call begins, I'd like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating performance, are forward-looking statements that involve risk and uncertainties.
A discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings. Except as required by law, the company undertakes no duty to update these forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through Tri Pointe's website and its SEC filings.
Hosting the call today along with myself is Glenn Keeler, the company's Chief Financial Officer, and Tom Mitchell, the company's Chief Operating Officer and President, and Linda Mamet, the company's Chief Marketing Officer. Again, I want to thank all of you for joining us today as we go over our results for the second quarter of 2020, discuss our ongoing strategic initiatives, and provide some color on our company's outlook. I hope all of you and your families are well and safe. Our thoughts and gratitude continue to go out to those across the country who are on the front lines risking their own safety to care for others. While COVID-19 continues to impact many areas of the country, there is positive news coming from the home building industry and within Tri Pointe.
Tri Pointe Group generated net income of $56.5 million in the second quarter, or $0.43 per diluted share, representing a 139% improvement over a year-ago period. Excluding the impact of costs related to the early extinguishment of debt and a workforce reduction plan, net income was $65.9 million or $0.51 per diluted share. This significant year-over-year jump in earnings came as a result of double-digit revenue growth and considerable margin expansion as our teams did an excellent job of delivering homes and maintaining price discipline. Following the initial shock to the economy brought about by the COVID-19 pandemic, order activity steadily improved and then gained momentum as the quarter progressed, culminating in a 28% year-over-year improvement in orders for the month of June, including a 36% increase in California.
This momentum has continued into July with net orders up over 40% year-over-year for the first three weeks of the month, with California orders up over 70%. We believe there are several demand factors driving this improvement. First, it is evident that the pandemic has created a heightened interest in single-family homeownership. According to the America at Home study conducted by housing experts in April, 46% of respondents who are renters said COVID-19 has made them more inclined to buy a home. This means potential increased housing demand as households switch from being renters to owners. According to this study, 72% of respondents desire a single-family detached home over any multi-family housing type.
Whether this interest stems from an exodus from high-density urban locations, the rise in the number of people working from home, or a desire for more living space, homeownership has become more of a priority for many Americans. We believe this change in consumer behavior is not a short-term phenomenon, but rather a secular shift that will have long-lasting impact on our industry and will specifically benefit Tri Pointe both short and long term. Second, it is important to remember that housing industry fundamentals were very strong prior to the pandemic. These fundamentals included strong job growth, demand from all age cohorts, low inventory for both new and resale homes, and very favorable interest rates. These dynamics, other than job growth, are still here today, but have additionally been supported by historic fiscal and monetary response to the pandemic by the federal government.
These dynamics and demographic shifts have contributed to the industry's results and resiliency. Third, Tri Pointe Group's continued emphasis on home building design and innovation has been another key factor in our recent sales success. Due to the pandemic, Americans are spending more time at home than they ever have, and as a result, are willing to pay a premium for features and amenities that cater to their family's needs and lifestyles. We believe this trend plays to our strengths, as Tri Pointe has always been at the forefront of new home design, driven by extensive consumer research and a consistent focus on product differentiation. The pandemic has led consumers to look more critically at the livability of their home in terms of safety, technology, flexibility, and comfort, and we feel our home offerings are ideally suited to take advantage of this trend.
We continue to pursue a balanced strategy with respect to our product offerings, with a growing emphasis on the more affordable segments of the market. In fact, an increasing number of our communities feature homes that cater to entry-level and first-move-up buyers. These communities are designed to address the affordability issues that exist in many markets through smaller lot sizes and efficient floor plans while still providing premium home design. As an example, in California, where the cost of land is high and supply is constrained, we have repositioned our product offerings to better address the affordability challenges in the state. Year to date, 45% of our orders in California had a base price of $500,000 or less, and another 31% had a base price between $500,000 and $750,000. This strategy has served us well as California's generated to date absorption pace of 3.8 homes per community per month.
This shift is part of a larger strategy, which aims to diversify our operations from both a product and geographic standpoint through the introduction of more affordably priced communities from our longer-dated assets in California, and the continued expansion into early-stage markets such as Sacramento, Austin, Dallas, and the Carolinas. Deliveries from these markets will make up an increasingly higher % of our company's total, which will lower our overall ASP profile and increase our inventory turns. We believe this gradual transition to increasing deliveries in new markets and more affordable price points will give us more opportunities for growth in a less capital-intensive manner and will lead to a better, more consistent return profile over time. Another way we are looking to improve our returns is through a more streamlined operating model.
In May, we made the difficult decision to implement a reduction in workforce stemming from the existing and future impacts of the pandemic on our business. These cuts are expected to reduce our overhead expenses by $21 million this year and by $33 million on an annualized basis. While our business has rebounded sharply since the implementation of this headcount reduction, we do not anticipate a commensurate return to prior staffing levels. The pandemic has also given us a chance to advance how we conduct our sales efforts. In an er a of shelter in place orders and social distancing, consumers are becoming increasingly comfortable shopping from home. We had anticipated that future sales would shift to an online model and had already invested significantly in this technology.
This has enabled us to quickly pivot to conducting more of our sales efforts virtually and setting up in-person one-on-one appointments at our communities, which convert into sales at a higher rate than walk-in traffic. Our online new leads grew by 8% in the second quarter compared to the first quarter, despite a 51% reduction in digital advertising spend during that same time. 48% of our net orders in the second quarter were driven through virtual and one-on-one appointments resulting from engagement with our online sales team, a 21% increase compared to the first quarter. We have found this new sales model to be much more efficient way to sell homes and believe that this shift in consumer behavior will be long-lasting.
In summary, the COVID-19 pandemic has created a number of challenges for our industry, but also a number of opportunities, and TRI Pointe Group is well positioned to make the most of these opportunities, thanks to our unique home offerings, our enhanced online sales capabilities, and our very strong balance sheet. Now I'd like to turn it over to Glenn, who will provide more detail about the quarter and our financial results.
Thanks, Doug. Good morning, everyone. I'm going to highlight some of our results and key financial metrics for the second quarter, and then finish my remarks with our expectations and outlook for the third quarter and full year 2020. At times, I will be referring to certain information from our slide deck that is posted on our website, as mentioned earlier. Slide six of the earnings call deck provides some of the financial and operational highlights from our second quarter. The impacts of COVID-19 on orders were significant to start the quarter, with the month of April orders down 54% year-over-year. We began to see demand increase in late April and early May and finished the quarter strong, resulting in an overall order decline of only 11%.
Specifically for the month of June, we achieved our second highest order month in the company's history, recording 624 net new home orders, which was a 28% increase year-over-year and was driven by an absorption rate of 4.3 homes per community per month compared to 3.3 a year ago. The increase in absorption rates for the month of June was broad-based across all reporting segments. The cancellation rate for the second quarter was 21% and went from a high point in April of 36%, down to only 13% for the month of June. Turning to deliveries, we delivered 1,229 homes during the quarter, which was a 9% increase year-over-year. This resulted in home sales revenue of $767 million, which was an 11% increase year-over-year on an average selling price of $624,000 per home.
Our home building gross margin percentage for the quarter was 21.6%, representing a 460 basis point improvement year-over-year. The increase in gross margin percentage was across all reporting segments and reflective of strong market dynamics. In addition, there was a higher percentage of revenue from our long-term California assets compared to the prior year. SG&A expense as a percentage of home sales revenue was 10.8%, which was 130 basis point improvement year-over-year, as a result of the leverage gained from the increase in revenue and the savings from the reduction in force that Doug mentioned earlier. Net income for the quarter was $57 million or $0.43 per diluted share, which was an increase of 139% compared to the prior year. The reduction in force that occurred during the quarter resulted in $5.5 million of severance-related charges.
In addition, during the quarter, the company refinanced a portion of the $300 million senior notes that were due in 2021, which resulted in $6.9 million of early debt extinguishment costs. Excluding these items, earnings per diluted share was $0.51 for the quarter. Moving on to our active selling communities. During the second quarter, the company opened 12 new communities and closed out of 10 to end the quarter with 145 active selling communities. For the remainder of the year, we anticipate opening approximately 15 new communities, and depending on order demand, potentially closing between 25 and 35 communities. This would result in an ending active community count in the range of 125 to 135. At the outset of COVID and the related stay-at-home orders, our focus prudently shifted to managing our balance sheet and preserving cash.
As a result, we paused development spending for certain new communities and land acquisition for future communities. Due to the pause, the opening of approximately 15 new communities moved from the back half of 2020 to the beginning of 2021. We expect to see more meaningful community count growth in 2021 and 2022 as we grow communities in our existing markets and continue to ramp up our early start divisions of Sacramento, Austin, Dallas, and the Carolinas. At quarter end, we owned or controlled approximately 30,000 lots, of which 27% were under option versus 20% a year ago. We have made solid strides on our goal of reducing our own lots by continuing to deliver homes from our long-term California assets and increasing option lots by acquiring more lots in capital-efficient markets like Texas and the Carolinas.
A detailed breakdown of our lots owned will be reflected in our Form 10-Q, which will be filed later today. In addition, there is a summary of lots owned or controlled by state on page 22 in the slide deck. Looking at the balance sheet, at quarter end, we had approximately $3 billion of real estate inventory. Our total outstanding debt was $1.4 billion, resulting in a ratio of debt to capital of 39.4% and a ratio of net debt to net capital of 30.2%. During the quarter, the company issued $350 million of senior notes due in 2028. The proceeds were used to pay down, through a tender offer, $216 million of our $300 million in senior notes that were due in 2021. The remaining $84 million of senior notes were redeemed in July.
As a result of this redemption, we incurred an additional $3.4 million of debt extinguishment costs in July. During the second quarter, the company generated $250 million in positive cash flow from operations and ended the quarter with over $1 billion of liquidity, consisting of $475 million of cash on hand and $559 million available under our unsecured revolving credit facility. Now I'd like to summarize our outlook for the third quarter and full year. While there is still significant uncertainty related to COVID-19 and its potential impacts, both short and long-term on the economy, we want to provide some guidance on our expected results. For the third quarter of 2020, the company anticipates delivering between 1,100 and 1,200 homes at an average sales price of $620,000-$630,000.
Home building gross margin is expected to be in the range of 20%-21%, SG&A as a percentage of home sales revenue is expected to be in the range of 10.2%-10.7% for the third quarter. Lastly, the company expects its effective tax rate for the third quarter of 2020 to be approximately in the range of 25%-26%. For the full year, we anticipate delivering between 4,400 and 4,700 homes at an average sales price of $620,000-$630,000.
Home building gross margin is expected to be in the range of 20%-21%. For the full year, while our SG&A expense as a percentage of home sales revenue is expected to be in the range of 11%-11.5%. Finally, the company is forecasting its effective tax rate for the full year to be in the range of 24%-25%. I will now turn the call back over to Doug for some closing remarks.
Thanks, Glenn. In conclusion, I'm very pleased with our performance this quarter, particularly in light of what our expectations were three months ago when we took precautionary measures to preserve capital and prepare for the possibility of a protracted slowdown. Market dynamics during the pandemic have benefited the new home market. Our strategic positioning, diversified product offering, and experienced management team has us well positioned for both short and long-term success. We continue to be vigilant and disciplined with our capital, as there are still many uncertainties relative to the pandemic and its impact on the economy. Based on our team's experience and how we were able to adapt to the changing environment in the second quarter, I am confident that Tri Pointe Group has the right people, strategy, and operating discipline in place to succeed and overcome any challenges we may encounter in the future.
That concludes my prepared remarks. Now we'd be happy to take your questions.
Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first question comes from the line of Alan Ratner with Zelman & Associates. Please proceed with your question.
Hey, guys. Good morning. Nice job navigating through this crazy time here, but glad to hear you're all doing well. My first question, if I could, just digging in a little bit on the closing guidance for the back half of the year. It seems a little conservative just on the surface based on where your backlog is right now, and I know there's a lot of moving parts here. Obviously, your orders have picked up quite a bit towards the end of the quarter, so I'm guessing a lot of those deliveries slip into 2021. I guess what I'm really trying to get an understanding of is the guidance assuming any, as far as spec supply, like where your current spec inventory is?
Is it assuming just a lower than normal availability of spec product heading into the back half of the year compared to what you normally have? Is there something else that would drive your conversion rate to be so much lower than it's been in the past?
Hey, Alan. Good question. This is Glenn. We did start the quarter, speaking specifically to your question about specs. We had only roughly 300 specs to start the quarter, and we finished the quarter with 198, which is 1.4 per community. We don't have a lot of specs to pull into this year, you're right in that, on the surface, the backlog conversion looks lower than normal. It's because we had such a strong June of orders, and those are all, the majority of those are being delivered in 2021. That's why the percentages look lower.
Got it. Okay. That's helpful. Just as far as the strategy on specs, have you accelerated the pace of new speculative starts, or are you still taking somewhat of a wait and see approach to see if the strength in demand here persists for another few months?
This is Doug. To kind of tag onto the last question and that one, obviously the pandemic, everybody reacted to, all the companies reacted to it differently. We definitely did take a kind of a pause for roughly 45 days. We did take a more conservative view on starting specs. Since that time, we have opened up our operations to normal, looking to run at three to five specs per community. In a nutshell, we are increasing our spec level, and it's at community level. It's driven by community level, too. There's tremendous demand in the entry level, first move up out in the, let's pick on Banning Beaumont, for example, where we've sold, how many homes, Tom? We've sold about 83, no, I'm sorry, 115 homes net year to date, 79 in, what? The last 65, 85 days.
In those markets, we've had a very strong appetite to increasing spec level.
That's really helpful. Thank you for that. If I could just add one more on the pricing side. Obviously, very strong order activity here in June and July. Curious what steps, if any, you've taken on pricing and just as far as the impact to margin. Is there any mix impact that we should be aware of, just given the timing of deliveries in the back half of the year? It seems like you're expecting fairly stable margins, but I wasn't sure if there's any mix nuances you would want to point out from that.
Good morning, Alan. This is Tom. Obviously, we continue to try to manage and balance pace and price, but we are really encouraged by our demand profile overall. For the most part, the majority of our product offerings, we have been able to increase price or either reduce incentives and/or increase price. We're encouraged by that trend. As always, we do have some of our higher priced, long-dated legacy assets that have an impact on mix as we deliver those. You should be aware of that, but nothing out of the normal.
Alan, this is Doug. Just to clarify my last comment on Banning. At our Atwell master plan, pretty amazing statistics. Out of two communities, we sold 114 homes net in 95 days. This is no different than what you're hearing from the other builders. There's tremendous demand. Lake Elsinore, all these communities start at $295,000. We sold 42 net sales in 52 days. There's obviously a tremendous demand. The pandemic has definitely created a sense of urgency, especially that entry level first move-up buyer.
It's great to hear. Good luck, guys.
Thank you.
Thanks.
Thank you. Our next question comes from the line of Mike Dahl with RBC Capital Markets. Please proceed with your question.
Morning. Thanks for taking my questions. Nice to see the rebound these last couple of months. Just go back to Alan's question on pricing power. I guess it's good to kind of feed the machine a little bit to rebuild some of the backlog that was maybe lost in April and to a lesser extent in May. Even with your mix shift, you haven't really run this business as a four sale a month type of absorption model. As you look out to the back half of the year, in terms of incremental pricing power, acceleration, and pricing power, how actively are you going to look at really managing that pace back down versus letting it run a little hot for now? Just looking for a little more color there.
Well, it's a balanced approach, Mike. This is Doug. It's a balanced approach. We're constantly analyzing and adjusting all the communities. For example, we were just talking about Banning. We've got a lot of lots out there, and we've got a lot of product to offer. We're definitely pushing pace over price. I also feel that there's just an incremental view towards a little bit of pace over price building into a nice backlog going into 2021. The reason I say that is because there's just tremendous uncertainty. You're running into this continued wave of test scores going up, pandemic issues, political election year issues, fiscal stimulus issues. There's enough unknowns out there that we're going to continue a balanced approach. Where there's communities that have less inventory and less runway, we'll definitely push and be pushing on price more so.
For example, down in San Diego, there'll be more push on price down there. It's all project by project. I am encouraged to build a strong backlog because there's a lot of unknowns, as I said. We'll see where 2021 could shape up after this year-end election.
Okay, thanks. Yeah, I guess that makes sense given the uncertainty. At the same time, you are running down your community count a bit into year-end, and you do have a lot of land behind it. That's why just curious to get the take there. I guess second question, just sticking with Banning and maybe just taking your inland portfolio in California in total as an example. Do you have any data or anecdotes on how many of your recent buyers have been effectively in-market buyers versus in-migration from more coastal areas?
Yeah, Mike, this is Tom. Nothing specifically, but we are seeing a trend that's happening throughout the country relative to the pandemic. With people working remotely, it does provide people the opportunity to go a little further out to get more attainable pricing. Certainly there has been some of that, but nothing extremely out of the normal.
Okay. Last one, if I could sneak one in. I mean, Doug, you've mentioned the urgency buyer. We're a handful of months into the pandemic, so obviously it continues to roll along, unfortunately. From a buyer standpoint, buyers have had some time to adjust and think about what they want or need at this point. When you're hearing about or looking at kind of urgency in the market, any shift in the dynamic in terms of buyers coming in the door and whether there's actually more of a patience now and a willingness to take a delivery that's maybe six to nine months out versus needing to be in the next couple of months?
Hi, Mike, this is Linda. There's definitely an understanding with buyers now that there is high demand in the new home market, especially as they see such low supply levels in the resale market. Yes, we do see buyers willing to be patient, waiting to purchase a home, but they also want to personalize that home. They want what they want, and they can attain more with historically low rates. They're prioritizing things like home offices, private outdoor living space, adult children returning to home, renewed interest in things like cooking, home technology. That's definitely a motivating factor for our to-be-built sales.
Okay, thank you.
Thanks, Mike.
Thanks, Mike.
Thank you. Our next question comes from the line of Stephen Kim with Evercore ISI. Please proceed with your question.
Thanks very much, guys. Certainly I would think that with the lower rates as a benefit here, that all the things that you just mentioned about things on people's wish lists, they now have the actual ability to pay for those things. That's encouraging. I'm curious about the timing of when you started raising prices because, Doug, obviously when we were talking in April, things were pretty scary. You talked about a 45-day sort of halt to the business, so to speak. Things have really started coming back quickly, and I'm wondering if, kind of like Meritage mentioned yesterday, you would say that you kind of started raising prices in earnest sometime in maybe mid to late June. Is that a fair guess?
Hey, Stephen, this is Tom. We started raising prices very early in the year, then we took a pause, obviously, as the pandemic really had a significant impact and slowdown. Then, obviously, as order demand began to pick back up, we've been constantly looking at our pricing models and where we've had the ability to raise prices, we have. I'd say that probably started back in earlier June, would be a better guess of the resurgence in price activity.
If you think that through, Stephen, it's Doug. What Tom's saying is very logical, right? The industry was very strong through February, early March. You come out of this thing. We were all staring at each other thinking, "Is this going to be the ultimate depression, recession? Is housing going to be just one of those bleak industries?" We turn around, and the most obvious thing that a lot of us missed was the fact that people were sheltered in place, and the home is now the most important asset. Nobody's traveling. Nobody's going out much. They're saving money, blah, blah. We start selling. Sales start ramping up. You don't just start pushing the pricing lever during a pandemic because you want to see that that momentum gets going. The momentum gets going in certain communities.
Yeah, you start pushing pricing maybe in early June, probably more later, middle, latter part of June. It's a very logical progression when you're trying to manage your business during one of the most uncertain times I've ever had in my career. I think it all makes sense.
Oh, for sure. I guess where I was kind of going with it is that in light of a backlog turnover ratio that's going to be below 50% here in the third quarter from your guide, that by the same token, if you've had a sort of a re-acceleration in pricing in sort of June and then maybe in July and then going forward, we're really not going to see the bulk of that price increase flowing through your gross margins until really kind of late in the year and really into 2021. That was what I was just trying to make sure that I was correct on.
Yeah. I think you're thinking about that correct.
Yeah. Hence, when you give your guidance, that's what we should be thinking. With respect to the SG&A, I was really intrigued, Doug, by your comment about how this new way of going about merchandising your homes and interfacing with your customers has really provided some increase in efficiency. I think this is an area that we know we kind of heard, but it feels like this COVID environment really has created this really interesting test case. It sort of forced everybody to sort of try to test this new way of doing business. Your SG&A guidance, given your revenue outlook, suggests that the strong SG&A performance we saw, or SG&A control we saw this quarter, is going to really continue or even get even better in the third quarter and beyond.
I'm really wondering if you could maybe enumerate some of the specific things about this more digital way of marketing your homes that are resulting in real tangible savings that we're able to see right now.
Stephen, this is Linda. I think there are several factors at play. Certainly, over the longer term, we do believe that a more virtual online sales platform will have cost efficiencies. With the high demand we're currently seeing in the market, we have been able to pull back on advertising spend and focus on middle and lower funnel customers that are already showing high home buying intent. We do see a short-term lift in brokers because resale supply is so low right now. Over time, we still believe that the online model will result in savings in that sales cost area as well.
Stephen-
Yeah.
This is Glenn. Just to add to that, I think the other part that you're seeing flow through that SG&A line is the reduction in force that we took, and we're just really focusing on operating at a little bit more of a streamlined basis and being more efficient. We've invested in technology over the last couple of years, including our back-office systems, and we're starting to see some of the benefits of that.
Additionally, Stephen.
Yeah.
As we look to the future, when we think about the virtual experience and our ability to do maybe some unattended access, some self-guided touring, and more things will be able to be done virtually versus having to have the amount of capital invested in a fully merchandised model complex. We will have models out and available. We think we'll be able to do it more efficiently.
All those make sense. Thanks a lot, guys. It'll be interesting to see how things progress, but it's looking good. Thanks.
Thanks, Stephen.
Thanks, Stephen.
Thank you. Our next question comes from the line of Truman Patterson with Wells Fargo. Please proceed with your question.
Hi. Good morning, guys. Thanks for taking my question, and nice quarter.
Thank you.
First, your July order growth accelerated versus June, which is a little atypical relative to some of your peers. I was just hoping, could you just dissect this for us, how the trends are playing out geographically? Are you seeing the relatively underperforming areas in April and May, which might have been hit a little bit harder from the COVID-19 shutdowns? Are those areas starting to rebound more quickly and kind of catch up on a relative basis in June and July? I'm just trying to understand some of the current trends as to how your July order trends outperformed June.
Yeah, that's a good question, Truman. It's Doug. Where we're seeing a lot of tremendous growth is in California in the entry-level first move-up segments. I mentioned out in Banning and Beaumont, it is very strong. We're also feeling a lot of strength in the Phoenix market, and that's really a move-up buyer. We've opened a master plan in the Gilbert/Chandler area called Waterston, and we've had a sales pace of about 4.9 per week, priced in the fives to seven. It's a very broad-based sales effort, order effort. It's across all segments. I think the strongest, I'd say, Tom, we've seen in the last four weeks, has been in California and Phoenix.
Yeah, without a doubt, Truman. The other thing where it maybe is not so much geographically driven, I think there's a correlation to our new product offerings. Specifically, we have introduced, as Doug just talked about, some new master plans in the Gilbert/Chandler area in Arizona, as well as those new products we've offered in the Inland Empire. Across the board, our new product offerings seem to have more receptivity and a higher absorption pace, which is giving you that strong July order trend.
Okay, thanks. I take it those new designs probably have some form of study or something to really target the needs of the COVID buyer today.
Yes, this is Linda. We have alw ays focused on flexibility within our floor plan designs.
Yep.
Easily being able to adapt those spaces to people's needs at the time.
Okay. Thanks for that. Just to follow up on Alan's question on your closings guidance. We were expecting a little bit more, and I understand there's some spec issues, but want to come at it from a little bit of a different angle. Is there anything else that's capping your back half closings? Is it from the state closures early on in COVID, and muni closures, construction delays from labor shortages, any other muni issues or, on top of some of the spec items, is it somewhat out of just caution that you don't necessarily know how the COVID situation is going to play out in the back half of the year?
Yeah. Truman, it's Doug. Just remember, from March 15 through end of April, there was pretty heavy shelter-in-place orders. Yeah.
Housing was deemed essential, there were a lot of issues in working around that. In particular, we don't generate huge volume in the Bay Area right now compared to the other areas. In Seattle, we're very constrained, although Seattle was selling homes under the most constrained environment I've ever seen in my life. We couldn't build them or could only build them so quickly. Let's face it, as we mentioned, Tom and I put a very tight, firm grip on the number of specs starting.
When you factor that in, that was all very prudent management at the time, you gradually let your foot off the brake, you start pushing on the gas pedal. Maybe some people push harder earlier or later. That's just how we viewed it as we were working our way through the pandemic and managing our business and our cash flow and our balance sheet.
Yeah, Truman, relative to supply chain constraints or labor constraints, as well as efficiencies within various jurisdictions. We're not seeing any significant global impact relative to that. We still are operating, so I wouldn't say that is a hindrance or an obstacle to our deliveries. Our cycle times and construction schedules have extended anywhere from about 3% to 10%. There is some timing delays there. Different municipalities certainly are shorthanded. The ability to obtain approvals, permits, and inspections are probably seeing some delays. Overall, I think you have to factor in, like Doug said, relative to that initial pause, that pushed back the opening and production starts on several new communities that Glenn spoke to in his prepared remarks. That also is probably putting the biggest factor on our limited ability to ramp up more production for year-end completions.
Okay. Thank you. I appreciate it.
Thank you. Our next question comes from the line of Jay McCanless with Wedbush. Please proceed with your question.
Hey, good morning. Thanks for taking my question. I guess first on Vegas, looks like the absorption there was pretty rough during the quarter. What are you all seeing now as you move into the third quarter on that market?
Yeah, Jay, this is Tom. We're encouraged in Vegas. Surprisingly so. You can imagine what that market and economy looks like with its dependence on entertainment and gaming. We have seen kind of a broad-based return at all price segments from that consumer. Positive trends going through June and continuing into July, and so we look to continue to have a bright, optimistic outlook for the Vegas market.
To put some numbers on that, Jay, absorptions in April were 1.3, and 2.2 in May, and 2.6 in June. We continue to see a ramp up, and it's still pulling a lot of consumers from the higher cost states, namely California next door. If you go into the casinos, as they're opening partially, you'll see a lot of Californians in there, that's for sure.
That's great. Great to hear. Doug, your commentary about trying to go to lower price points, more entry level, I guess, more affordable first move up. Could you maybe remind us where Tri Pointe's entry level exposure is now, and where you expect it to be over the next two to three years?
Well, we talked, the entry level is relative to each market that you're in, right? We've got a very strong entry level first move up exposure here in California, which we highlighted in the script out in the Inland Empire up in L.A. Long-term California assets, we've been able to reposition those to pretty much most of those assets are starting at or below $750, and that's a very attractive price. Out in the Inland Empire, we're starting at $295. We've got a very strong lineup. We also have another community that will come on in the next 18 months, Tom, down in San Diego called Meadowood, which will continue that kind of first move up strong price point. When you look at the growth of the company, though, it's going to happen more east. Especially when you think about Texas, the Carolinas, Colorado.
Those are all going to be driving more entry level premium first move up. There's tremendous growth. All the land deals that we had tied up at the beginning of the year, we were successful in pushing those out with the sellers, and now they're slowly being brought back to the system. That's where you're going to see tremendous growth over the next couple of years, is east of California. We'll still be a dominant player here in California, probably doing about 2,000 deliveries a year or so, but the big growth is coming outside, and that's all entry level premium first move up.
Yeah, Jay, relative to overall percentages right now, for the second quarter, about 33% of our orders came from entry level, about 49% from move up. We have seen, just even over this last year, a slight improvement in those numbers and a little bit of a reduction in our overall luxury category.
I would add, Jay, that move to more affordable price points while still providing that premium brand experience, I mean, we started that back in 2018. As you recall, there's been a pretty strong affordability issue when rates kind of spiked a little bit. Overall, pricing has made a lot of markets less affordable, whether you're in Colorado, Phoenix, wherever. We intentionally drove our business towards that product offering, smaller lots, both attached, detached, and more affordable price points. Before you know it, when interest rates go up another 100 basis points, everybody's going to say, "Oh my God, the sky is falling." We're all spoiled right now. The consumer gets very acclimated very quickly. Being in affordable price points is going to be important for the future.
That sounds great. Thanks again.
Yeah.
Thank you. Our next question comes from the line of Jack Micenko with SIG. Please proceed with your question.
Hi, good morning. I was hoping to start by maybe talking in broad strokes around potential 2021 community count. I think you'd mentioned 15 communities pushed into next year. You've got some of these new markets, I think, coming online in 2021. Looking back historically, you've been sort of a mid-single digit grower for the last five or six years, ex-acquisitions. With that push out, with the new markets coming online, is it fair to assume with what we know now around the uncertainty, is it fair to assume the community count growth should be well above historical averages in 2021 for those factors? Or is there a component that we might be missing that would reduce that sort of back-of-the-envelope math?
No, like I said in my prepared remarks, it'll be more meaningful community count growth than you've seen in the last couple of years. We'll give more specific guidance, obviously, as we get closer to 2021 regarding community count. You will see it at a higher percentage than it has been over the last few years.
How much of that can you say at this point is from some of the newer markets?
A good bit of it. We're obviously growing in the Carolinas. We're going to end this year with three communities in the Carolinas. That's only going to grow from there. Sacramento is another area where we've just really got going, so that's another area that's going to grow. Austin, Dallas, Colorado. There's some organic growth in our existing markets as well.
Okay. Historically, and even in the early part of the quarter, you've been fairly strategic about buying back stock and in the context of this forward growth, how do you think about share repurchases, maybe through the balance of the year, if not now? What would it take you to see in the business to maybe restart that? Just curious on capital.
Jack, as we mentioned in the remarks, we're very return-focused, whether it's building more entry-level premium, first-time move up, focusing in on higher inventory turns. Better returns on our equity are driven, obviously, by increased earnings, which we are a growth company that's going to grow and increase our scale and leverage. At the same time, we're also focused on what I call the financial levers that can affect and manage our balance sheet and our growth and those types of returns. We'll be looking at all that. We've got a very, very strong balance sheet with a lot of liquidity to handle our growth and also use the right financial levers to move forward in enhancing those returns, whether it's through acquisition, buying back stock, and so on and so forth. Those are all available to us.
Okay. All right. Thanks.
Thanks.
Thank you. Our next question comes from the line of Carl Reichardt with BTIG. Please proceed with your question.
Thanks. Hey, guys. It's actually Jack got my questions, but I wanted to ask, just to go back to, for a long time, Doug, you've talked about the multiple brand strategy, and it's still here. It's important to you guys. Can you walk through if your thinking has changed on that at all? The idea that maybe as a national builder, a single brand might be more cost-effective, more efficient, or are there things about the multiple brand strategy that continue to be enhancements or advancements for you all?
I think, the multiple brand strategy as it sits today still bodes well for us. When you go into Texas, and especially with the consumer, the Trendmaker brand resonates very well. I've always argued brand is earned over time. We continue to see some strong acceptance by the consumer. Obviously, when it comes to any sort of brand strategy, it really comes down to the culture and people that you can have in place to execute, whether it's having the relationships to buy land, subcontractors, attract people. It can be done in either format, but we're still happy and focused on the best of big and small.
Carl, I would add, as we continue to look at ways to become more efficient and effective in our business, we do look at overall strategies to streamline it. There may be opportunities for us to improve as we look at maybe some regionalization, and then some economies relative to some of our home office shared services.
Thanks, Tom. You talked a little bit about California, its importance, your share there, growth in new markets. As you look out the next three to five years, let's assume things get a little better in 2021, we have a relatively normalized market. Are you still thinking that half your asset base will be at California, or as you sell through the legacy assets there and take that cash, are you expecting to reinvest it in California, spread it out more? I'm just trying to get a sense of several years from now, what the geographic panoply looks like. Thanks, guys.
Hey, Carl, this is Glenn. Good question. I think you will see a shift to more, if you look at our overall lot supply to more outside of California, just because we've had such a long-term supply of those lots, and as we work through those lots and those convert to cash, we're investing that cash still within California, obviously, because there are certain markets that don't have those long-term California assets that we need to invest in. By and large, you'll see more of a balanced lot supply throughout the U.S.
Thanks, Glenn. Thanks, guys.
Thank you. We have reached the end of our question and answer session. I'd like to turn the call back over to Mr. Bauer for any closing remarks.
I want to thank everyone, and I hope everyone stays safe and healthy, and we look forward to talking to all of you next quarter. Thank you very much.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.