What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-06 compared with 2024-02-05 · 141 added, 139 removed, 379 unchanged (42% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The demand for new homes declined beginning in mid-2022 as the Federal Reserve repeatedly increased benchmark interest rates in response to inflation, which, in turn, drove national mortgage and other interest rates higher and negatively impacted home affordability and consumer sentiment.

Despite the higher mortgage interest rates that continued through most of 2023, demand for new homes began to strengthen in early 2023, weakened in the fall with continued mortgage interest rate volatility, and then gained momentum to end the year as mortgage interest rates moderated.

For the full year, we experienced an increase in our net new orders of 23% in 2023 from 2022.

The overall demand for new homes strengthened as the result of a continuing limited supply of existing home inventories in combination with the market adjusting to the higher interest rate environment.

While affordability challenges for housing remain due to the higher interest rates, cost increases, and general inflation in recent years, we have responded by adjusting sales prices where necessary and focusing sales incentives on closing cost incentives, especially mortgage interest rate buydowns, which have supported the increase in our net new orders.

Additionally, the rate of customer order cancellations that spiked in 2022 in response to inflation and interest rate increases has now normalized to historical levels.

Supply chain constraints that began after the onset of the COVID-19 pandemic improved in 2022 and 2023, which has contributed to a shortening of our production cycle times.

The time required to construct a home was approximately six weeks shorter at the end of 2023 compared to the end of 2022, and we experienced sequential improvement throughout 2023.

However, production cycle times remain elevated versus our historical norms as the availability of certain materials and construction labor remain challenged along with ongoing, though lessened, delays in municipal approvals and inspections.

Despite the recent improvements, the noted supply chain and labor issues have led to significant cost pressures in almost all areas of our business, but especially labor and materials costs related to the development of our land inventory and the construction of our homes.

Lumber, in particular, has experienced heightened volatility in recent years.

Due to the length of our construction cycle times, there is a lag between when such cost changes occur and when they impact our operating results.

During 2023 and 2022, through a combination of cost reduction initiatives, construction pacing and sales strategies which took advantage of periods of strong consumer demand, we were able to largely offset the majority of such cost increases through the sales prices of our homes.

As the business slowed in the second half of 2022, we adjusted business practices to support a consistent cadence of house starts and an appropriate inventory of quick move-in homes as we focused on turning our assets and delivering high returns on investment.

By achieving an effective balance of price and pace, we realized strong revenues and earnings in 2023.

Within an evolving macroeconomic environment, consumers across all buyer segments and price points continued to demonstrate a strong desire for homeownership.

As a result, we increased our housing starts throughout 2023.

As interest rates continued to increase during 2023, buyer demand slowed slightly but strengthened again during the fourth quarter as a result of a recent decrease in mortgage interest rates.

We remain focused on taking a measured approach to our capital allocation strategy to effectively respond to future volatility in demand.

Accordingly, we are focused on protecting liquidity and closely managing our cash flows while also continuing to focus on shareholder returns, including the following actions:

– Increasing our lot optionality within our land pipeline for increased flexibility;

– Producing sufficient levels of spec inventory (houses without customer orders) to service buyers seeking to close within 30 to 90 days;

– Maintaining a focus on shareholder return through share buybacks and dividends, including a 25% increase in our dividends from $0.16 to $0.20 per share effective with our January 2024 dividend payment;

– Taking an opportunistic approach to repurchasing debt;

– Maintaining ample liquidity.

Although higher mortgage interest rates may persist for some time, the supply of both new and existing homes for sale remains limited, and demographics supporting housing demand remain favorable.

We remain confident in our ability to navigate this environment and to position the Company to take advantage of opportunities as they arise and support future growth.

The following tables and related discussion set forth key operating and financial data for our Homebuilding and Financial Services operations as of and for the fiscal years ended December 31, 2023 and 2022.

The following discussion and analysis of our financial condition and results of operations are provided as a supplement to and should be read in conjunction with the consolidated financial statements and related notes included in Item 8 in this Annual Report on Form 10-K.

It also should be read in conjunction with the disclosure under “Special Notes Concerning Forward-Looking Statements” found in Item 7A of this Annual Report on Form 10-K.

The following tables and related discussion set forth key operating and financial data as of and for the fiscal years ended December 31, 2024 and 2023.

For similar operating and financial data and discussion of our fiscal 2023 results compared to our fiscal 2022 results, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on February 5, 2024.

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Net income $ 3,083,262 $ 2,602,372

Per share data - assuming dilution:

Net income $ 11.72 $ 11.01

Diluted earnings per share $ 14.69 $ 11.72

In 2022, the Federal Reserve began raising its benchmark interest rate in response to persistent inflation that began after the onset of the COVID-19 pandemic.

These actions drove national mortgage and other interest rates significantly higher and negatively impacted home affordability and consumer sentiment.

The Federal Reserve cut their benchmark interest rate by 100 bps from September 2024 to December 2024.

Despite this reduction, national mortgage interest rates increased nearly 100 bps from September 2024 to December 2024 with a cumulative increase of approximately 400 bps since the beginning of 2022.

These higher financing costs, coupled with increases in the cost of land inventory and construction labor, as well as elevated overall inflation in recent years as compared with historical levels, have created affordability challenges for new homebuyers, resulting in decreased demand in the second half of 2024 as mortgage interest rates increased.

Despite these affordability challenges, interest in new homes remained at high levels in 2024, aided by a continuing limited supply of existing home inventory in combination with the market slowly adjusting to a higher interest rate environment, which has resulted in increased volatility in our new order pace over 2023 and 2024.

We have responded to these affordability challenges by adjusting sales prices where necessary and focusing sales incentives on closing cost incentives, especially mortgage interest rate buydowns.

These strategic decisions contributed to 2% growth in new orders from 2023 to 2024 but also drove a slight decrease in gross margins from 2023 to 2024.

We operate our business to generate a cadence of house starts to align with the sales environment, and an appropriate inventory of quick move-in speculative ("spec") homes as we focus on turning our assets and delivering high returns on investment, which has allowed us to achieve an effective balance of price and pace.

The supply chain constraints that arose in connection with the COVID-19 pandemic have largely subsided.

As a result, our production cycle times improved over the course of 2023 and 2024 and have now returned to near historical norms.

This decrease in cycle times, coupled with our strong backlog and focus on spec home production, contributed to a 9% increase in closings in 2024 as compared to 2023.

Within an evolving macroeconomic environment, consumers across all buyer segments and price points have continued demonstrating a strong desire for homeownership despite continued interest rate variability.

During 2023 and 2024, through a combination of our ongoing construction cost reduction initiatives, construction pacing, and sales strategies that capitalized on periods of strong consumer demand, we were able to achieve historically strong financial results, including higher income before income taxes than in any previous year.

Although higher mortgage interest rates may persist for some time, the limited supply of existing homes for sale, continuing low levels of unemployment, and demographics supporting housing demand remain favorable.

We expect that homebuyers will continue to face affordability challenges, so our sales paces may remain volatile on a monthly basis and we expect our sales incentives to remain elevated.

Additionally, we continued to face pressures in 2024 in the cost of land acquisition and development and the cost and availability of construction labor.

Due to the length of our land development and construction cycle times, there is a lag between when such cost changes occur and when they impact our operating results.

While we expect to continue to generate healthy gross margins, they may decline somewhat in future periods as a result of these factors.

We remain focused on taking a measured approach to our capital allocation strategy to effectively respond to future volatility in demand.

Accordingly, we are focused on protecting liquidity and closely managing our cash flows while also continuing to focus on shareholder returns, including the following actions:

– Increasing our lot optionality within our land pipeline for increased flexibility;

– Producing sufficient levels of spec inventory (houses without customer orders) to service buyers seeking to close within 30 to 90 days;

– Maintaining a focus on shareholder return through share buybacks and dividends, including a 10% increase in our dividends from $0.20 to $0.22 per share effective with our January 2025 dividend payment and an additional $1.5 billion share repurchase authorization effective January 2025;

– Taking an opportunistic approach to repurchasing debt;

– Maintaining ample liquidity.

We believe our strategic approach with respect to sales incentives, advertising, and our production cadence will enable us to meet consumer demand at the selling prices necessary to turn our inventory, maintain market share, and generate healthy returns.

And we remain confident in our ability to navigate the future environment and to position the Company to take advantage of opportunities as they arise and support future growth and continued profitability and financial strength.

Homebuilding Operations

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2024 FY 2024 vs.

Home sale revenues (a)

$ 15,598,707 — % $ 15,548,119

Home sale revenues $ 17,318,521 11 % $ 15,598,707

Land sale and other revenues 195,435 38 % 142,116

Total Homebuilding revenues 17,513,956 11 % 15,740,823

Home sale cost of revenues (a) (b)

Home sale cost of revenues (a)

(12,311,766) 12 % (11,030,206)

Land sale and other cost of revenues (189,893) 52 % (124,607)

Selling, general, and administrative expenses ("SG&A") (c)

Selling, general, and administrative expenses ("SG&A") (b)

(1,321,276) 1 % (1,312,642)

Equity income from unconsolidated entities (d)

3,506 (e) 49,403

Gain on debt retirement 663 (e) —

Other income (expense), net (f)

38,538 (e) (64,331)

Equity income from unconsolidated entities (c)

43,151 (d) 3,506

Other income (expense), net (e)

61,752 58 % 39,201

Income before income taxes $ 3,795,924 14 % $ 3,316,075

Supplemental data:

Gross margin from home sales (a) (b)

Gross margin from home sales (a)

28.9 % (40) bps 29.3 %

SG&A % of home sale revenues (a) (c)

SG&A % of home sale revenues (b)

7.6 % (80) bps 8.4 %

Closings (units) 31,219 9 % 28,603

Average selling price (a)

$ 545 2 % $ 534

Net new orders (g) :

Average selling price $ 555 2 % $ 545

Net new orders (f) :

Units 29,226 2 % 28,580

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Dollars $ 6,494,718 (11) % $ 7,319,714

(a) All periods reflect the reclassification of closing cost incentives from home sale cost of revenues to home sale revenues ( Note 1 ).

(b) Includes the amortization of capitalized interest.

(d) Equity income from unconsolidated entities includes a gain of $49.1 million in 2022 related to a property sale in an unconsolidated entity in Northern California.

(e) Percentage not meaningful.

(f) See "Other income (expense), net" for a table summarizing significant items ( Note 1 ).

(g) Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations and change orders.

(a) Includes the amortization of capitalized interest.

(b) Includes insurance reserve reversals of $333.9 million and $130.8 million in 2024 and 2023, respectively.

(c) Equity income from unconsolidated entities includes a gain of $39.5 million in 2024 related to the sale of our minority interest in a joint venture.

(d) Percentage not meaningful.

(e) See "Other income (expense), net" for a table summarizing significant items ( Note 1 ).

(f) Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations and change orders.

Home sale revenues

Home sale revenues for 2023 were higher than 2022 by $50.6 million.

The increase was attributable to a 2% increase in average selling price partially offset by a 2% decrease in closings.

The increase in average selling price reflected the impact of continued consumer demand and persistent inflation, partially offset by an increase in the mix of first-time buyer homes, which typically carry a lower sales price, and higher sales incentives in substantially all of our markets.

The year-over-year increase in average selling price occurred in the majority of our markets.

The decrease in closings during 2023 was primarily attributable to 2022 benefiting from a larger beginning backlog due to heightened demand during 2021 combined with a sharp decrease in net new orders in the fourth quarter of 2022 in response to the aforementioned sharp increase in mortgage interest rates.

Home sale revenues for 2024 were higher than 2023 by $1.7 billion, or 11%.

The increase was attributable to a 9% increase in closings combined with a 2% increase in average selling price.

The increase in closings during 2024 was primarily attributable to a strong backlog, improved production cycle times, and initiatives to prioritize quick move-in spec homes to satisfy customer desire to quickly close on homes due to the volatile interest rate environment and to ensure an efficient production cadence of homes.

The increase in average selling price during 2024 reflected the impacts of consumer demand, persistent inflation, and a slight mix shift toward our West segment, which carries a higher average selling price, partially offset by a slight increase in the mix of first-time buyer homes, which typically carry a lower average selling price.

Home sale gross margins

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Gross margins remained strong in both 2024 and 2023 relative to historical levels.

Generally, we were able to maintain pricing to substantially offset increases in house and land costs as a result of continued consumer demand combined with the low supply of new and existing homes for sale.

Due to the low supply of new and existing homes for sale, we were generally able to maintain net sales pricing to substantially offset increases in house and land costs and higher sales incentives over these periods.

However, we expect sales incentives, especially mortgage interest rate buydowns, to remain elevated to address buyer affordability challenges, along with higher land and house costs, which may continue to impact our gross margins in the near term.

Land sale and other revenues

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SG&A as a percentage of home sale revenues was 7.6% and 8.4% in 2024 and 2023, respectively.

The gross dollar amount of our SG&A decreased $68.6 million, or 5%, in 2023 compared with 2022.

This decrease is primarily attributable to lower insurance costs as a result of favorable claims experience partially offset by other overhead costs to support the higher number of active communities.

The gross dollar amount of our SG&A increased $8.6 million, or 1%, in 2024 compared with 2023.

This increase resulted primarily from overhead costs to support increased production volumes coupled with higher compensation costs, partially offset by insurance reserve reversals of $333.9 million in 2024, compared to insurance reserve reversals of $130.8 million in 2023.

Other income (expense), net

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(10,034) (10,538)

Gain (loss) on debt retirement (222) 663

Interest income 59,486 61,533

Interest expense (479) (469)

Miscellaneous, net 11,524 8,659

Miscellaneous, net (a)

31,267 11,524

Total other income (expense), net $ 61,752 $ 39,201

The higher write-offs of deposits and pre-acquisition costs in 2022 occurred primarily in the second half of 2022 as we made decisions to terminate a number of land option agreements due to the aforementioned sharp decrease in demand that began in mid-2022 but then recovered in 2023.

Interest income increased significantly in 2023 as the result of significantly higher returns on invested cash balances due to the elevated interest rate environment.

(a) Includes a gain of $17.5 million in 2024 related to the sale of a non-homebuilding property.

Interest income began to increase significantly in 2023 and has remained elevated in 2024 as the result of higher returns on invested cash balances due to the elevated interest rate environment.

Net new orders

Net new orders in units increased 2% in 2024 compared with 2023, while net new orders in dollars increased by 8% compared with 2023.

The increased net new order volume in 2023 was primarily due to improved demand combined with better availability of quick move-in speculative homes.

Net new orders in dollars increased a smaller amount than the increase in units as the result of both an increase in the mix of first-time buyer homes, which typically carry a lower sales price, and higher sales incentives in substantially all of our markets.

The increased net new order volume in 2024 was primarily due to a 4% increase in average active communities.

The increase in net new orders in dollars was primarily attributable to the higher unit volume along with geographic mix, including

our West segment, which carries a higher average selling price.

The annual cancellation rate (canceled orders for the period divided by gross new orders for the period) decreased to 15% in 2024 compared to 16% in 2023.

Cancellation rates began to increase in mid-2022 as the market responded to increased home affordability challenges resulting from a historic increase in mortgage interest rates, increases in the price of homes, and the impact of inflationary pressures in the broader economy.

Ending backlog dollars, which

represents orders for homes that have not yet closed, decreased 5% in 2023 compared with 2022, as a result of improved production cycle times.

Cancellation rates began to increase in 2022 and have now returned to historical levels.

Ending backlog dollars, which represents orders for homes that have not yet closed, decreased 11% in 2024 compared with 2023, primarily as a result of decreased demand in the second half of 2024 as mortgage interest rates increased and improved construction cycle times.

Homes in production

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The number of homes in production at December 31, 2024 was 2% lower compared to December 31, 2023.

This decrease resulted from the lower order backlog caused by the lower number of sold homes and higher cancellations in the second half of 2022 following the significant increase in mortgage interest rates.

This decrease was partially offset by an increased number of completed unsold homes, which reflected our strategic decision to increase starts of speculative units in response to buyer demand for quick move-in homes.

This decrease was primarily due to a decreased number of sold homes due to lower backlog and improved production cycle times, which reduces the length of time a home sits in inventory.

The number of unsold homes under construction increased in 2024, which reflects our strategic decision to increase starts of spec units in response to buyer demand for quick move-in homes.

We continue to carefully monitor our production levels heading into the spring 2025 selling season and expect to lower the percentage of our inventory that is unsold by the end of 2025.

Controlled lots

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For reporting purposes, our Homebuilding operations are aggregated into six reportable segments:

Connecticut, Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia

Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia

Georgia, North Carolina, South Carolina, Tennessee

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2024 FY 2024 vs.

Home sale revenues (a) :

Northeast $ 1,068,199 10 % $ 969,107

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West 3,933,430 24 % 3,182,947

Other Homebuilding 194,389 35 % 144,378

$ 17,513,956 11 % $ 15,740,823

Income before income taxes (b) :

Income before income taxes (a) :

Northeast $ 229,996 9 % $ 210,508

Southeast 631,527 5 % 603,843

Florida 1,212,675 29 % 939,034

1,121,311 (6) % 1,193,481

Midwest 490,185 38 % 353,966

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31,219 9 % $ 28,603

Average selling price (a) :

Average selling price:

Northeast $ 704 3 % $ 684

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$ 555 2 % $ 545

(a) All periods reflect the reclassification of closing cost incentives to home sale revenues from home sale cost of revenues ( Note 1 ).

(b) Includes land-related charges as summarized in the following land-related charges table ( Notes 2 and 3 ).

(c) West includes a gain of $49.1 million in 2022 related to a property sale in an unconsolidated entity in Northern California.

(d) Other homebuilding includes corporate interest income, the amortization of intangible assets, the amortization of capitalized interest, and other items not allocated to the operating segments.

Also includes insurance reserve reversals of $130.8 million and $65.0 million in 2023 and 2022, respectively ( Note 11 ).

(a) Includes land-related charges as summarized in the following land-related charges table ( Notes 2 and 3 ).

(b) Includes a gain of $17.5 million in 2024 from the sale of a non-homebuilding property.

(d) Other homebuilding includes income from unconsolidated entities, interest, the amortization of intangible assets, the amortization of capitalized interest, other items not allocated to the operating segments, and the elimination of internal capital charges allocated to the operating segments.

Also includes insurance reserve reversals of $333.9 million and $130.8 million in 2024 and 2023, respectively ( Note 11 ), and a gain of $39.5 million in 2024 related to the sale of our minority interest in a joint venture.

The following table presents additional selected financial information for our reportable Homebuilding segments:

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See Notes 2 and 3 to the Consolidated Financial Statements for additional discussion of these charges.

For 2023, Northeast home sale revenues decreased 9% compared with 2022 due to a 12% decrease in closings partially offset by a 4% increase in average selling price.

The decrease in closings occurred across the majority of markets, while the increase in average selling price occurred across all markets.

Income before income taxes decreased 11%, primarily due to decreased closings and revenues in the Northeast Corridor.

Net new orders increased across all markets.

For 2023, Southeast home sale revenues decreased 3% compared with 2022 due to a 5% decrease in average selling price partially offset by a 2% increase in closings.

The decrease in average selling price and increase in closings occurred across the majority of markets.

Income before income taxes decreased 10%, primarily due to decreased revenues and gross margins across the majority of markets.

For 2024, Northeast home sale revenues increased 10% compared with 2023 due to a 7% increase in closings combined with a 3% increase in average selling price.

The increase in closings was mixed among markets, while the increase in average selling price occurred across the majority of markets.

Income before income taxes increased 9%, primarily due to increased revenues, which were mixed among markets, and increased gross margins across the majority of markets.

Net new orders increased across the majority of markets.

For 2023, Florida home sale revenues increased 22% compared with 2022 due to a 12% increase in closings combined with a 9% increase in average selling price.

The increase in closings occurred across the majority of markets while the increase in average selling price occurred across all markets.

For 2024, Southeast home sale revenues increased 8% compared with 2023 due to a 10% increase in closings partially offset by 1% decrease in average selling price.

The increase in closings occurred across the majority of markets while the decrease in average selling price was mixed among markets.

Income before income taxes increased 5%, primarily due to increased revenues across the majority of markets and increased gross margins, which were mixed among markets.

Net new orders decreased across the majority of markets.

For 2024, Florida home sale revenues increased 1% compared with 2023 due to a 2% increase in closings partially offset by a 1% decrease in average selling price.

The increase in closings was mixed among markets, while the decrease in average selling price occurred across the majority of markets.

Income before income taxes decreased 6%, primarily due to lower gross margins across the majority of markets.

Net new orders decreased across the majority of markets.

For 2024, Midwest home sale revenues increased 24% compared with 2023 due to a 20% increase in closings combined with a 3% increase in average selling price.

The increase in closings occurred across all markets while the increase in average selling price occurred across the majority of markets.

Income before income taxes increased 38%, primarily due to increased revenues and gross margins across all markets.

Net new orders increased across the majority of markets.

For 2023, Midwest home sale revenues decreased 9% compared with 2022 due to a 14% decrease in closings partially offset by a 5% increase in average selling price.

The decrease in closings occurred across the majority of markets while the increase in average selling price occurred across all markets.

Income before income taxes increased 1%, primarily due to the increase in average selling price across all markets, partially offset by the closing volume decline across the majority of markets.

Net new orders increased across all markets.

For 2023, Texas home sale revenues decreased 6% compared with 2022 due to a 7% decrease in closings partially offset by a 1% increase in average selling price.

The decrease in closings occurred across all markets while the increase in average selling price occurred across the majority of markets.

Income before income taxes decreased 16%, primarily due to decreased revenues and gross margins across all markets.

Net new orders increased across the majority of markets.

For 2023, West home sale revenues decreased 7% compared with 2022 primarily due to a 4% decrease in closings combined with a 4% decrease in average selling price.

The decrease in closings and average selling price occurred across the majority of markets.

Income before income taxes decreased 39%, primarily due to decreased revenues and gross margins across the majority of markets.

Results for 2022 also included a gain of $49.1 million related to a property sale in an unconsolidated entity in Northern California.

For 2024, Texas home sale revenues increased 5% compared with 2023 due to a 3% increase in closings combined with a 2% increase in average selling price.

The increase in closings occurred across the majority of markets, while the increase in average selling price was mixed among markets.

Income before income taxes decreased 7%, primarily due to decreased gross margins in Central Texas.

The decrease in net new orders was mixed among markets.

For 2024, West home sale revenues increased 24% compared with 2023 primarily due to an 18% increase in closings combined with a 5% increase in average selling price.

The increase in closings occurred across all markets while the increase in average selling price occurred across the majority of markets.

Income before income taxes increased 45%, primarily due to increased revenues and gross margins across all markets.

Results for 2024 also include a gain of $10.7 million related an individual property sale in Northern California.

Net new orders increased across all markets.

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Operating as a captive business model primarily targeted to supporting our Homebuilding operations, the business levels of our Financial Services operations are highly correlated to Homebuilding.

Our Homebuilding customers continue to account for substantially all loan production.

Our Homebuilding customers continue to account for substantially all Financial Services activities.

We believe that our capture rate, which represents loan originations from our Homebuilding operations as a percentage of total loan opportunities from our Homebuilding operations, excluding cash closings, is an important metric in evaluating the effectiveness of our captive mortgage business model.

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Years Ended December 31,

Supplemental data:

Supplemental Pulte Mortgage data:

Capture rate 85.9 % 81.6 %

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Total funded originations 100 % 100 %

Total Financial Services revenues during 2023 increased 3% compared with 2022 as the result of higher earned title premiums and insurance commissions.

Total Financial Services revenues during 2024 increased 35% compared with 2023 primarily due to an increase in origination volumes resulting from increased closings within Homebuilding and improved capture rates.

Revenues per loan also increased as the result of a more favorable operating environment for our mortgage operations.

The increased use of closing cost incentives in the form of mortgage interest rate buydowns has also contributed favorably to our mortgage operations volumes and revenues per loan.

Income before income taxes

The increase in income before income taxes for 2023 as compared with 2022 was primarily attributable to higher title and insurance revenues partially offset by higher overhead expenses.

The increase in income before income taxes for 2024 as compared with 2023 was primarily due to the increase in home closings in our Homebuilding operations, as well as higher loan origination volume and revenues per loan in our mortgage operations.

Our effective income tax rate was 23.0% and 24.6% for 2024 and 2023, respectively.

Our effective tax rate for each of these periods differs from the federal statutory rate primarily due to state income tax expense.

See Note 8 for additional discussion of our effective income tax rate.

Liquidity and Capital Resources

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For the next 12 months, we expect our principal demand for funds will be for the acquisition and development of land inventory, construction of house inventory, and operating expenses, including our general and administrative expenses.

Though we experienced significant improvement in 2023, the elongation of our production cycle in recent years has required a greater investment of cash in our homes under production.

Though we experienced significant improvement in 2023 and 2024, the elongation of our production cycle in recent years has required a greater investment of cash in our homes under production.

Additionally, we plan to continue our dividend payments and repurchases of common stock.

In August 2024, we need to repay or refinance Pulte Mortgage's master repurchase agreement with third-party lenders (as amended, the "Repurchase Agreement").

In August 2025, we need to repay or refinance Pulte Mortgage's master repurchase agreement

with third-party lenders (as amended, the "Repurchase Agreement").

While we intend to refinance the Repurchase Agreement, there can be no assurances that the Repurchase Agreement can be renewed or replaced on commercially reasonable terms upon its expiration.

However, we believe we have adequate liquidity to meet Pulte Mortgage's anticipated financing needs.

Beyond the next twelve months, we will need to repay or refinance our Revolving Credit Facility, which matures in June 2027, and our unsecured

senior notes, the next tranche of which becomes due in 2026.

Beyond the next twelve months, we will need to repay or refinance our Revolving Credit Facility, which matures in June 2027, and our unsecured senior notes, the next tranche of which becomes due in 2026.

We may from time to time repurchase our unsecured senior notes through open market purchases, privately negotiated transactions, or otherwise.

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At December 31, 2024, we had $1.6 billion of unsecured senior notes outstanding with no repayments due until March 2026, when $251.9 million of notes are scheduled to mature.

At December 31, 2022, we had $2.0 billion of unsecured senior notes outstanding with no repayments due until March 2026, when $500.0 million of notes were scheduled to mature.

During the twelve months ended 2023, we completed open market repurchases of $44.6 million and $56.1 million of our unsecured senior notes scheduled to mature in 2026 and 2027, respectively.

During the twelve months ended 2024, we completed repurchases of $193.4 million and $106.6 million of our unsecured senior notes scheduled to mature in 2026 and 2027, respectively, through a cash tender offer.

Our total repurchases during the twelve months ended 2024, including open market repurchases, were $310.2 million.

Other notes payable

Other notes payable include non-recourse and limited recourse secured notes with third parties that totaled $35.8 million at December 31, 2024.

These notes have maturities ranging up to six years, are secured by the applicable land positions to which they relate, and generally have no recourse to other assets.

These notes have maturities ranging up to five years, are secured by the applicable land positions to which they relate, and generally have no recourse to other assets.

The stated interest rates on these notes range up to 5%.

Joint venture debt

At December 31, 2023, aggregate outstanding debt of unconsolidated joint ventures was $73.5 million, of which $33.2 million related to one joint venture in which we have a 50% interest.

In connection with this loan, we and our joint venture partner provided customary limited recourse guaranties in which our maximum financial loss exposure is limited to our pro rata share of the debt outstanding.

At December 31, 2024, aggregate outstanding debt of unconsolidated joint ventures was $31.1 million.

Revolving credit facility

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The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility).

As of December 31, 2023, we were in compliance with all covenants.

As of December 31, 2024, we were in compliance with all covenants and requirements.

Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries.

At December 31, 2024, we had no borrowings outstanding, $321.1 million of letters of credit issued, and $928.9 million of remaining capacity under the Revolving Credit Facility.

At December 31, 2022, we had no borrowings outstanding, $303.4 million of letters of credit issued, and $946.6 million of remaining capacity under the Revolving Credit Facility.

Financial Services debt

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Pulte Mortgage uses these resources to finance its lending activities until the loans are sold in the secondary market, which generally occurs within 30 days.

In August 2023, Pulte Mortgage entered into the Repurchase Agreement, which matures on August 14, 2024.

The Repurchase Agreement replaced a substantially similar agreement that previously existed with different lenders.

The maximum aggregate commitment was $850.0 million during the seasonally high borrowing period from December 27, 2023 through January 15,

Thereafter, the maximum aggregate commitment ranges from $600.0 million to $700.0 million.

Pulte Mortgage maintains a master repurchase agreement with third-party lenders entered into in August 2023 (the "Repurchase Agreement") that matures on August 13, 2025.

The maximum aggregate commitment was $675.0 million at December 31, 2024 and decreased to $650.0 million at January 14, 2025, which continues until maturity.

The Repurchase Agreement also contains an accordion feature that could increase the commitment by $50.0 million above its active commitment level.

The purpose of the changes in capacity during the term of the agreement is to lower associated fees during seasonally lower volume periods of mortgage origination activity.

Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale.

The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity.

At December 31, 2023, Pulte Mortgage had $499.6 million outstanding at a weighted average interest rate of 7.15%, and $350.4 million of remaining capacity under the Repurchase Agreement.

The Repurchase Agreement contains

various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity.

At December 31, 2024, Pulte Mortgage had $526.9 million outstanding at a weighted average interest rate of 6.13%, and $148.1 million of remaining capacity under the Repurchase Agreement.

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We declared quarterly cash dividends totaling $171.4 million and $149.8 million in 2024 and 2023, respectively, and repurchased 10.1 million and 13.8 million shares in 2024 and 2023, respectively, for a total of $1.2 billion and $1.0 billion in 2024 and 2023, respectively.

On April 24, 2023, the Board of Directors increased our share repurchase authorization by $1.0 billion.

On January 29, 2024, the Board of Directors increased our share repurchase authorization by $1.5 billion.

At December 31, 2024, we had remaining authorization to repurchase $682.9 million of common shares.

On January 29, 2024, the Board of Directors increased our on January 29, 2024 share repurchase authorization by $1.5 billion.

On January 29, 2025, the Board of Directors increased our share repurchase authorization by an additional $1.5 billion.

Contractual obligations

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At December 31, 2024, outstanding deposits totaled $639.8 million, of which $18.4 million is refundable.

We are under contract to purchase federal transferable tax credits that we expect to use to offset future federal income tax

obligations totaling $222 million.

The timing of such purchases is intended to approximate the timing of our expected federal income tax obligations.

For further information regarding our primary obligations, refer to Note 5 , "Debt" and Note 11 , "Commitments and Contingencies" to the Consolidated Financial Statements included elsewhere in this Annual Report on 10-K for amounts outstanding as of December 31, 2024, related to debt and commitments and contingencies, respectively.

Operating activities

Net cash provided by operating activities in 2023 was $2.2 billion, compared with net cash provided by operating activities of $668.5 million in 2022.

Net cash provided by operating activities in 2024 was $1.7 billion, compared with net cash provided by operating activities of $2.2 billion in 2023.

Generally, the primary drivers of our cash flow from operations are profitability and changes in inventory levels and residential mortgage loans available-for-sale, each of which experiences seasonal fluctuations.

Our positive cash flow from operations for 2024 was primarily due to our net income of $3.1 billion, which was partially offset by a $787.5 million net increase in inventories primarily attributable to investment in land inventory.

Net cash provided by operating activities in 2022 was primarily due to our net income of $2.6 billion, which was partially offset by a $2.3 billion net increase in inventories primarily attributable to higher house inventory in production resulting from more unsold units and extended production cycle times combined with investment in land inventory.

Cash flow from operations in 2022 was also favorably impacted by a $266.3 million decrease in residential mortgage loans available-for-sale.

Net cash provided by operating activities in 2023 was primarily due to our net income of $2.6 billion, which was partially offset by a $354.0 million net increase in inventories primarily attributable to investment in land inventory.

Investing activities

Net cash used in investing activities totaled $94.5 million in 2024, compared with $129.1 million in 2023.

The 2023 cash outflows primarily reflect $23.4 million of investments in unconsolidated entities primarily in support of our land development activities and capital expenditures of $92.2 million related to our ongoing investment in new communities, construction operations, and certain information technology applications.

Net cash used in investing activities in 2022 primarily reflected $64.7 million of investments in unconsolidated entities primarily in support of our land development activities and capital expenditures of $112.7 million related to our ongoing investment in new communities, construction operations, and certain information technology applications.

The 2024 cash outflows primarily reflect capital expenditures of $118.5 million related to our ongoing investment in new communities, construction operations, and information technology applications.

Net cash used in investing activities in 2023 primarily reflected $23.4 million of investments in unconsolidated entities primarily in support of our land development activities and capital expenditures of $92.2 million related to our ongoing investment in new communities, construction operations, and information technology applications.

Financing activities

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As a result of the seasonality of our operations, our quarterly results of operations are not necessarily indicative of the results that may be expected for the full year.

Additionally, given the disruption in economic activity caused by the COVID-19 pandemic, supply chain challenges, increase in mortgage interest rates, and other macroeconomic factors, our quarterly results in 2023 and 2022 are not necessarily indicative of results that may be achieved in the future.

Additionally, given the disruption in economic activity, supply chain challenges, increase in mortgage interest rates, and other macroeconomic factors, our quarterly results in 2024 and 2023 are not necessarily indicative of results that may be achieved in the future.

Supplemental Guarantor Financial Information

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Communities that demonstrate potential impairment indicators are tested for impairment by comparing the expected undiscounted cash flows for the community to its carrying value.

For those communities whose carrying values exceed the expected undiscounted cash

flows, we determine the fair value of the community and impairment charges are recorded if the fair value of the community’s inventory is less than its carrying value.

For those communities whose carrying values exceed the expected undiscounted cash flows, we determine the fair value of the community and impairment charges are recorded if the fair value of the community’s inventory is less than its carrying value.

We generally determine the fair value of each community using a combination of discounted cash flow models and market comparable transactions, where available.

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However, in the event of an extended economic slowdown that leads to moderate or significant decreases in the price of new homes in certain geographic or buyer submarkets, we could have a larger number of communities that begin to approach these levels such that more detailed impairment analyses would be necessary, and the resulting impairments could be material.

Additionally, we have $704.2 million of deposits and pre-acquisition costs at December 31, 2023 related to option agreements to acquire additional land.

In the event of an extended economic slowdown, we could elect to cancel a large portion of such land option agreements, which would generally result in the write-off of the related deposits and pre-acquisition costs.

Additionally, we have $1.1 billion of deposits and pre-acquisition costs at December 31, 2024 related to option agreements to acquire additional land.

In the event of an extended economic slowdown, we could elect to

cancel a large portion of such land option agreements, which would generally result in the write-off of the related deposits and pre-acquisition costs.

Self-insured risks

At any point in time, we are managing numerous individual claims related to general liability, property, errors and omission, workers compensation, and other business insurance coverage.

At any point in time, we are managing numerous individual claims related to general liability, property, errors and omission, workers compensation, and other business insurance coverages.

We reserve for costs associated with such claims (including expected claims management expenses) on an undiscounted basis at the time product revenue is recognized for each home closing and periodically evaluate the recorded liabilities based on actuarial analyses of our historical claims.

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Additionally, IBNR estimates comprise the majority of our liability and are subject to a high degree of uncertainty due to a variety of factors, including changes in claims reporting and resolution patterns, third party recoveries, insurance industry practices, the regulatory environment, and legal precedent.

State regulations vary, but construction defect claims are reported and resolved over an extended period often exceeding ten years.

State regulations vary, but construction defect claims are typically reported and resolved over an extended period often exceeding ten years.

Changes in the frequency and timing of reported claims and estimates of specific claim values can impact the underlying inputs and trends utilized in the actuarial analyses, which could have a material impact on the recorded reserves.

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During 2024 and 2023, we reduced general liability reserves by $333.9 million and $130.8 million, respectively, as a result of changes in estimates resulting from actual claim experience observed being less than anticipated in previous actuarial projections.

The changes in actuarial estimates were driven by changes in actual claims experience that, in turn, impacted actuarial estimates for potential future

These changes in actuarial estimates did not involve any changes in actuarial methodology but did impact the development of estimates for future periods, which resulted in adjustments to the IBNR portion of our recorded liabilities.

The changes in actuarial estimates were driven by changes in actual claims experience that, in turn, impacted actuarial estimates for potential future claims.

These changes in actuarial estimates did not involve any significant changes in actuarial methodology but did impact the development of estimates for future periods, which resulted in adjustments to the IBNR portion of our recorded liabilities.

There were no material adjustments to individual claims.

Rather, the adjustments reflect an overall lower level of losses related to construction defect claims in recent years as compared with our previous experience.

We attribute this favorable experience to a variety of factors, including improved construction techniques, rising home values, and increased participation from our subcontractors in resolving claims.

We attribute the favorable experience in more recent years to a variety of factors, including improved construction techniques, rising home values, and increased participation from our subcontractors in resolving claims.

The cumulative effect of these factors, as evidenced by the favorable claims experience for an extended period, have resulted in our actuarial estimates placing less weight on older, higher cost policy years and relatively more weight on more recent, lower cost policy years.

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 7. Management’s Discussion and Analysis