HOMES DELIVERED, BACKLOG AND NET NEW ORDERS
Homes delivered to customers represent the total number of deliveries of homes to buyers during a specified period. Homes delivered is derived by multiplying the backlog conversion rate times the beginning backlog.
Backlog consists of homes under a purchase contract but not yet delivered to a homebuyer.
The ending backlog represents the number of homes in the backlog from the previous period, plus the number of net orders (new orders for homes less cancellations) generated during the current period, minus the number of homes delivered during the current period.
The backlog at any given time is affected by cancellations, homes delivered and community counts. The backlog value represents potential future housing revenues from homes in the backlog. Finally, the backlog conversion rate is the number of homes delivered in a given period divided by the respective period’s beginning backlog.
Net new orders (new orders for homes less cancellations) are directly affected by community count, where community is defined as a single land development in which new homes are constructed as part of an integrated plan. Community count is the number of communities that are open for sales of homes.
The community development process mainly consists of the following phases:
- Acquisition of land
- Site planning and design
- Development of land into finished lots
- Construction and marketing of homes
- Delivery of completed homes
The community development process typically takes 6-18 months and depends on various factors like local, state and federal statutes; the process of government approvals and utility service activations; type of offering; the size of the community; financing; availability of construction materials and skilled labor; weather conditions; consumer demand; and economic conditions of the housing industry.
Communities offer various home designs, including single-family detached, condominium-style units, and multiple-story structures or duplexes that vary significantly in size and amenities. Companies typically provide a variety of house floor plans and elevations in each community with interior options and upgrades as well as exterior facades. They also build one to three model homes for each community so that prospective homebuyers can preview the designs and features available.
The absorption rate/contracts per community represent the number of net new home orders divided by the average community for the period. The U.K. market uses different terminology for similar concepts: communities are called sites; net new orders are called private reservations; backlog is referred to as the order book.