What changed in this filing

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Item 1A. Risk Factors

2025-02-14 compared with 2024-02-16 · 52 added, 33 removed, 247 unchanged (26% of the section changed)

13 unchanged sentences

• changes in energy prices;

• housing demand from population growth, household formation and other demographic changes, among other factors;

• population growth, household formations and other demographic changes that may be driven by, among other factors birth rate changes or U.S.

immigration changes;

and global financial system and credit market stability;

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These above conditions, among others, are complex and interrelated.

Adverse changes in such business conditions may have a significantly negative impact on our business.

Adverse changes in such business conditions may have a significantly negative impact on our business and results of operations.

The negative impact may be national in scope but may also negatively affect some of the regions or markets in which we operate more than others.

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We cannot predict their occurrence or severity, nor can we provide assurance that our strategic responses to their impacts would be successful.

Housing market conditions stabilized during 2023 compared to the latter half of 2022 as interest rate increases moderated and consumer confidence began to improve.

Housing market conditions improved in 2024, as interest rates continued to hover around 7% and consumer confidence continued to improve.

However, any decline in the homebuilding and mortgage lending industries and overall economy could decrease the market value of our inventory which could have a negative impact on our gross margins from home sales.

A reduction in our gross margins from home sales could have a significantly negative impact on our financial position and results of operations.

Additional external factors, such as foreclosure rates, mortgage availability, high inflation, a global economic slowdown, the prospect of a recession, and unemployment rates, could also negatively impact our results.

Additional external factors, such as foreclosure rates, mortgage availability, high inflation, and unemployment rates, could also negatively impact our results.

Increased mortgage interest rates have made it increasingly difficult for potential customers to qualify for sufficient financing, which is contributing to the affordability issues negatively impacting the homebuilding and mortgage lending industries.

Customers may be less willing or able to buy our homes if these conditions continue to impact the homebuilding industry.

We closely monitor our sales prices and offer sales incentives and mortgage rate buy-down programs and adjust base sales prices in certain circumstances and in certain communities, which negatively impacted our sales prices and gross margins in 2023.

We closely monitor our sales prices and offer sales incentives and mortgage rate buydown programs and adjust base sales prices in certain circumstances and in certain communities, which negatively impacted our sales prices and gross margins in 2024.

We may or may not continue to offer these incentives in 2025.

In the future, our pricing strategies may be limited by market conditions.

We may be unable to change the mix of our home offerings, reduce the costs of the homes we build or offer more affordable homes to maintain our gross margins or satisfactorily address changing market conditions in other ways.

We may be unable to change the mix of our home offerings, reduce the costs of the homes we build or offer more

affordable homes to maintain our gross margins or satisfactorily address changing market conditions in other ways.

In addition, cancellations of home sales contracts in backlog may increase.

Although our absorption rate and new contracts improved during 2023 compared to prior year, any decline in sales activity could adversely affect our results of operations, financial condition and cash flows.

Although our absorption rate, cancellation rate and new contracts improved during 2024 compared to prior year, any decline in sales activity could adversely affect our results of operations, financial condition and cash flows.

Our financial services business is closely related to our homebuilding business, as it originates mortgage loans principally on behalf of purchasers of the homes we build.

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To the extent a third party is unwilling or unable to perform such obligations, our financial condition, results of operations and/or cash flows could be negatively impacted.

Increased competition levels in the homebuilding and mortgage lending industries could reduce our new contracts and homes delivered, decrease the average sales prices of homes delivered and decrease mortgage originations, which would have a negative impact on our results of operations.

Increased competition in the homebuilding and mortgage lending industries could reduce our new contracts and homes delivered, decrease the average sales prices of homes delivered and decrease mortgage originations, which would have a negative impact on our results of operations.

The homebuilding industry is fragmented and highly competitive.

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Increased competition can also result in us selling fewer homes or experiencing a higher number of cancellations by homebuyers.

If, for example, prices for new homes decline, competitors increase their use of sales incentives, interest rates increase, the availability of mortgage financing diminishes, current homeowners find it difficult to sell their current homes, homebuyers are concerned about rising inflation, or there is a downturn in local or regional economies or in the national economy, homebuyers may choose to terminate their existing home purchase contracts with us in order to negotiate for a lower price or because they cannot, or will not, complete the purchase and our remedies generally do not extend beyond the retention of deposits.

These competitive pressures may negatively impact our future financial and operating results.

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Further reduction in the availability of mortgage financing or continued increases in mortgage interest rates or down payment requirements could adversely affect our business.

Mortgage interest rates increased significantly in 2022 and 2023 from historical low rates, which increased the costs of owning a home and reduced the demand for our homes.

Any additional increases by the Federal Reserve could further increase the costs of owning a home and reduce the demand for our homes.

Mortgage interest rates have remained elevated since rising in 2022 after a period of historically low rates, which increased the costs of owning a home and reduced the demand for our homes.

Despite the Federal Reserve reducing rates by 100 basis points during the second half of 2024, mortgage rates continue to hover between 6% and 7%.

Any increases by the Federal Reserve could further increase the costs of owning a home and reduce the demand for our homes.

In addition, any reduction in the availability of the financing provided by Fannie Mae and Freddie Mac could adversely affect interest rates, mortgage availability and our sales of new homes and origination of mortgage loans.

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Any increases in down payment requirements, lower maximum loan amounts, or limitations or restrictions on the availability of FHA and VA financing support could adversely affect interest rates, mortgage availability and our sales of new homes and origination of mortgage loans.

Even if potential customers do not need financing, changes in the availability of mortgage products may make it harder for them to sell their current homes to potential buyers who need financing, which may lead to lower demand for new homes.

Many of our homebuyers obtain financing for their home purchases from M/I Financial.

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Any limitations or restrictions on the availability of mortgage financing could reduce our sales.

In addition, if we are unable to originate mortgages for any reason going forward, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding and financial services results of operations.

In addition, if we are unable to originate mortgages for any reason, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding and financial services results of operations.

If land is unavailable at reasonable prices or terms, our homes sales revenue and results of operations could be negatively impacted and/or we could be required to scale back our operations in a given market.

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Our land investment exposes us to significant risks, including potential impairment charges, that could negatively impact our profits if the market value of our inventory declines.

We must anticipate demand for new homes several years prior to homes being sold to homeowners.

We must anticipate demand for new homes several years before actually selling homes to homeowners.

There are significant risks inherent in controlling or purchasing land, especially as the demand for new homes fluctuates and land purchases become more competitive, which can increase the costs of land.

There is often a significant lag time between when we acquire land for development and when we sell homes in neighborhoods we have planned, developed and constructed.

There is often a significant time lag between when we acquire land for development and when we sell homes in neighborhoods we have planned, developed and constructed.

The value of undeveloped land, lots and housing inventories can fluctuate significantly as a result of changing market conditions.

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Economic conditions could require us to sell homes or land at a loss, hold land in inventory longer than planned or walk away from land that we no longer intend to purchase resulting in write-offs of land deposits, which could significantly impact our financial condition, results of operations, cash flows and stock performance.

Periodically, as part of our normal course of business, we record asset impairment charges or write-off deposits for land that we no longer intend to purchase.

If conditions in the homebuilding industry decline, we are required to evaluate our inventory for potential impairment, which may result in additional valuation adjustments, which could be significant and could negatively impact our results of operations and financial condition.

We are required to periodically evaluate our inventory for potential impairment, which may result in additional valuation adjustments that could be significant and negatively impact our results of operations and financial condition.

We cannot make any assurances that the measures we employ to manage inventory risks and costs will be successful.

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Any of these circumstances could delay the start or completion of our communities, increase the cost of developing one or more of our communities and increase the construction cost of our homes.

Supply chain disruptions began to subside during 2023, and we began to experience an improvement in the availability and shortage of labor and certain building products, which positively impacted our construction cycle times.

However, if labor and building material shortages and cost increases continue, our gross margins and results of operations could be adversely affected if we are unable to continue to increase prices or achieve other cost savings.

If labor and building material shortages and cost increases return, our gross margins and results of operations could be adversely affected if we are unable to continue to increase prices or achieve other cost savings.

We depend on the continued availability of and satisfactory performance of subcontracted labor for the construction of our homes and to provide related materials.

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If the federal government or a state government changes its income tax laws by eliminating or substantially reducing the income tax benefits associated with homeownership, such as personal tax deductions for mortgage loan interest and real estate taxes, the after-tax cost of owning a home could measurably increase.

Any such increases, in addition to increases in personal income

tax rates, could adversely impact demand for and/or selling prices of new homes, including our homes, and the effect on our consolidated financial statements could be adverse and material.

Any such increases, in addition to increases in personal income tax rates, could adversely impact demand for and/or selling prices of new homes, including our homes, and the effect on our consolidated financial statements could be adverse and material.

At the same time, favorable tax law changes will not necessarily increase demand or allow for higher selling prices for homes generally or for the homes we sell.

We may not be able to offset the impact of inflation through price increases.

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Improper construction processes and defective products widely used in the homebuilding industry can result in the need to perform extensive repairs to large numbers of homes.

The cost of complying with our warranty obligations may be significant if we are unable to recover the cost of repairs from subcontractors, materials suppliers and insurers.

The cost of complying with our warranty obligations may be significant if we are unable to recover the cost of repairs from

subcontractors, materials suppliers and insurers.

We also can suffer damage to our reputation, and may be exposed to possible liability, if subcontractors fail to comply with applicable laws, including laws involving matters that are not within our control.

When we learn about potentially improper practices by subcontractors, we try to cause the subcontractors to discontinue them.

However, we may not always be able to

cause our subcontractors to discontinue potentially improper practices, and even when we can, we may not be able to avoid claims against us for personal injury, property damage or other losses relating to prior actions of our subcontractors.

However, we may not always be able to cause our subcontractors to discontinue potentially improper practices, and even when we can, we may not be able to avoid claims against us for personal injury, property damage or other losses relating to prior actions of our subcontractors.

Risks Related to Indebtedness and Financing

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• borrowings under the Credit Facility bear, and borrowings under any new facility could bear, interest at floating rates, which could result in higher interest expense in the event of an increase in interest rates;

• the terms of our indebtedness could limit our ability to borrow additional funds or sell assets to raise funds, if needed, for working capital, capital expenditures, acquisitions or other purposes;

• the terms of our indebtedness could limit our ability to borrow additional funds or sell assets to raise funds, if needed,

for working capital, capital expenditures, acquisitions or other purposes;

• our debt level and the various covenants contained in the Credit Facility, the indentures governing our 2030 Senior Notes and 2028 Senior Notes and the documents governing our other indebtedness could place us at a relative competitive disadvantage compared to some of our competitors;

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The inability of our lenders to satisfy their obligations under our credit facilities could adversely affect our liquidity and financial condition.

banking industry experienced bank failures and other significant challenges in 2023.

The failure of other banks or financial institutions could have an adverse effect on our liquidity or consolidated financial statements if we have deposits at the failed banks or financial institutions, or if the failed banks or financial institutions, or any substitute or additional banks or financial institutions, participate in our Credit Facility.

Under our Credit Facility, non-defaulting lenders still have an obligation to fund amounts up to their commitment level under the Credit Facility.

The failure of banks or financial institutions could have an adverse effect on our liquidity or consolidated financial statements if we have deposits at the failed banks or financial institutions, or if the failed banks or financial institutions, or any substitute or additional banks or financial institutions, participate in our Credit Facility.

Under our Credit Facility, non-defaulting lenders remain obligated to fund amounts up to their commitment level under the Credit Facility.

However, non-defaulting lenders are not obligated to cover or acquire a defaulting lender’s respective commitment to fund loans or to issue letters of credit and may be unwilling to issue additional letters of credit if we do not enter into arrangements to address the risk with respect to the defaulting lender (which may include cash collateral).

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When we become aware of practices relating to homes we build or financing we provide that do not comply with applicable laws, rules or regulations, we actively move to stop the non-complying practices as soon as possible.

However, regardless of the steps we take after we become aware of practices that do not comply with applicable laws, rules or regulations, we can in some instances be subject to fines or other governmental penalties, and our reputation can be injured, due to the practices having taken place.

Further, a health and safety incident relating to our operations could be costly in terms of potential liability and reputational damage.

Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements, and a failure that results in a major or significant health and safety incident is likely to be costly and could expose us to liability that could be costly.

Such an incident could generate significant negative publicity and have a corresponding impact on our reputation, our relationships with relevant regulatory agencies or governmental authorities, and our ability to attract customers and employees, which in turn could have a material adverse effect on our results of operations, financial condition and liquidity.

We could be adversely affected by efforts to impose joint employer liability on us for labor law violations committed by our subcontractors.

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These statutes, ordinances, rules and regulations may cause delays, may cause us to incur substantial compliance, remediation or other costs, and can prohibit or severely restrict development and homebuilding activity.

In addition, any failure to comply therewith could

give rise to fines, penalties or other liabilities, obligations to remediate, permit revocations or other sanctions and have an adverse effect on our results of operations, financial condition or business.

In addition, any failure to comply therewith could give rise to fines, penalties or other liabilities, obligations to remediate, permit revocations or other sanctions and have an adverse effect on our results of operations, financial condition or business.

Various advocacy groups and government agencies and the general public are increasingly focusing on the impact of climate change.

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Any increase in legal and regulatory requirements may cause us to incur substantial additional costs or, in some cases, cause us to determine that certain property is not feasible for development.

Changes in U.S.

trade policies and retaliatory responses from other countries may substantially increase the costs or limit supplies of building materials and products used in our homes.

Our business is impacted by international or cross-border trade, including the import and export of products and goods into and out of the United States and trade tensions among nations.

The shipping of goods across national borders is often more expensive and complicated than domestic shipping.

Political and economic tensions between governments create uncertainty with respect to tariffs, taxes and trade policies.

During the past several years, the U.S.

government has imposed new, or increased existing, tariffs on an array of imported materials and products that are used in the homes we build, including but not limited to, lumber, steel, aluminum and washing machines, which increases the costs of those items.

Changes in U.S.

administrative policy may strain international trade relations and lead to the imposition of non-tariff barriers or domestic preference procurement requirements and/or the imposition of retaliatory tariffs and other reactionary measures by foreign countries, including but not limited to Mexico, Canada, China and European countries.

On February 1, 2025, President Trump

signed executive orders imposing additional tariffs on Canada, Mexico and China under the International Emergency Economic Powers Act.

While the imposition of tariffs on Canada and Mexico was subsequently paused on February 3, 2025, uncertainty remains around the logistics of international trade in the future.

Any existing, new or increased tariffs could increase the cost of, and reduce the demand for, homes we build and any cost increases will either require us to increase prices or negatively impact our margins.

New or increased tariffs could also negatively affect U.S.

national or regional economies, which could negatively affect the demand for our homes.

Our results of operations, financial condition and cash flows could be adversely affected if pending or future legal claims against us are not resolved in our favor.

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The occurrence of these or other natural disasters can cause delays in the completion of, or increase the cost of, developing one or more of our communities, and as a result could materially and adversely impact our results of operations.

In addition to our costs, natural disasters and severe weather conditions may increase the cost of homeowner’s insurance which could reduce the number of potential buyers who can afford, or who are willing to purchase homes we build in these affected areas, which could result in reduced demand for our homes in these markets.

Information technology failures and data security breaches could harm our business.

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Although we and our service providers employ what we believe are adequate security, disaster recovery and other preventative and corrective measures, our security measures, taken as a whole, may not be sufficient for all possible situations and may be vulnerable to, among other things, hacking, employee error, system error and faulty password management.

Our ability to conduct our business may be impaired if these informational technology and computer resources, including our website and customer-facing applications, are compromised, degraded or damaged or if they fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure or intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources.

Our ability to conduct our business may be impaired if these information technology and computer resources, including our website and customer-facing applications, are compromised, degraded or damaged or if they fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure or intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources.

A significant disruption in the functioning of these resources, or breach thereof, including our website, could damage our reputation and cause us to lose customers, sales and revenue.

In addition, breaches of our information technology systems or data security systems, including cyberattacks and malicious uses of artificial intelligence, could result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying and confidential information (including information we collect and retain in connection with our business about our homebuyers, business partners and employees), and require us to incur significant expense (that we may not be able to recover in whole or in part from our service providers or responsible parties, or their or our insurers) to address and remediate or otherwise resolve.

The unintended and/or unauthorized public disclosure or the misappropriation of

proprietary, personal identifying or confidential information may also lead to litigation or other proceedings against us by affected individuals and/or business partners and/or by regulators, and the outcome of such proceedings, which could include losses, penalties, fines, injunctions, expenses and charges recorded against our earnings, could have a material and adverse effect on our financial condition, results of operations and cash flows and harm our reputation.

The unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying or confidential information may also lead to litigation or other proceedings against us by affected individuals and/or business partners and/or by regulators, and the outcome of such proceedings, which could include losses, penalties, fines, injunctions, expenses and charges recorded against our earnings, could have a material and adverse effect on our financial condition, results of operations and cash flows and harm our reputation.

In addition, the costs of maintaining adequate protection against such threats, based on considerations of their evolution, increasing sophistication, pervasiveness and frequency and/or increasingly demanding government-mandated standards or obligations regarding information security and privacy, could be material to our consolidated financial statements in a particular period or over various periods.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors