Fair Value Disclosures

3 Months Ended

Jan. 31, 2021

Fair Value Disclosures

Financial Instruments

The table below provides, as of the dates indicated, a summary of assets/(liabilities) related to our financial instruments, measured at fair value on a recurring basis (amounts in thousands):


		Fair value
Financial Instrument	Fair value hierarchy	January 31, 2021		October 31, 2020
Residential Mortgage Loans Held for Sale	Level 2	$	125,475	$	231,797
Forward Loan Commitments — Residential Mortgage Loans Held for Sale	Level 2	$	52	$	(31)
Interest Rate Lock Commitments (“IRLCs”)	Level 2	$	(358)	$	628
Forward Loan Commitments — IRLCs	Level 2	$	358	$	(628)
Interest Rate Swap Contracts	Level 2	$	652	$	—

At January 31, 2021 and October 31, 2020, the carrying value of cash and cash equivalents and customer deposits held in escrow approximated fair value.

The fair values of the interest rate swap contracts are determined using widely accepted valuation techniques including discounted cash flow analysis based on the expected cash flows of each swap contract. Although the Company has determined that the significant inputs, such as interest yield curve and discount rate, used to value its interest rate swap contracts fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our counterparties and our own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of January 31, 2021, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate swap contract positions and have determined that the credit valuation adjustments were not significant to the overall valuation of our interest rate swap contracts. As a result, we have determined that our interest rate swap contracts valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Mortgage Loans Held for Sale

At the end of the reporting period, we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans and commitments using the market approach to determine fair value.

The table below provides, as of the dates indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale (amounts in thousands):


	Aggregate unpaid principal balance		Fair value		Excess
At January 31, 2021	$	122,879	$	125,475	$	2,596
At October 31, 2020	$	225,826	$	231,797	$	5,971

Inventory

We recognize inventory impairment charges based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. The fair value of inventory was determined using Level 3 criteria. See Note 1, “Significant Accounting Policies – Inventory,” in our 2020 Form 10-K for information regarding our methodology for determining fair value. The table below summarizes, for the periods indicated, the ranges of certain quantitative unobservable inputs utilized in determining the fair value of impaired operating communities:


Three months ended:	Selling price per unit ($ in thousands)	Sales pace per year (in units)	Discount rate
Fiscal 2021:
January 31	2,003	2	14.3%



Fiscal 2020:
January 31	—	—	—%
April 30	613 - 789	9	14.3%
July 31	—	—	—%
October 31	—	—	—%

In fiscal 2020, we recognized $31.7 million of impairment charges on land owned for future communities relating to nine communities. As of the period the impairment charges were recognized, the estimated fair value of these communities in the aggregate, net of impairment charges, was $21.8 million. For the majority of these communities, the estimated fair values were determined based upon the expected sales price per lot in a community sale to another builder. The range of sales price per lot utilized in determining fair values in fiscal 2020 was approximately $33,000 - $180,000 per lot.

The table below provides, for the periods indicated, the number of operating communities that we reviewed for potential impairment, the number of operating communities in which we recognized impairment charges, the amount of impairment charges recognized, and, as of the end of the period indicated, the fair value of those communities, net of impairment charges ($ amounts in thousands):


		Impaired operating communities
Three months ended:	Number of communities tested	Number of communities	Fair value of communities, net of impairment charges		Impairment charges recognized
Fiscal 2021:
January 31	53	1	$	419	$	1,100


					$	1,100
Fiscal 2020:
January 31	65	—	$	—	$	—
April 30	80	1	$	2,754	300
July 31	66	—	$	—	—
October 31	53	1	$	1,113	375
					$	675

Debt

The table below provides, as of the dates indicated, the book value and estimated fair value of our debt (amounts in thousands):


		January 31, 2021				October 31, 2020
	Fair value hierarchy	Book value		Estimated fair value		Book value		Estimated fair value
Loans payable (1)	Level 2	$	974,139	$	979,592	$	1,151,257	$	1,157,315
Senior notes (2)	Level 1	2,659,856		2,914,484		2,669,876		2,888,822
Mortgage company loan facility (3)	Level 2	112,619		112,619		148,611		148,611
		$	3,746,614	$	4,006,695	$	3,969,744	$	4,194,748

(1) The estimated fair value of loans payable was based upon contractual cash flows discounted at interest rates that we believed were available to us for loans with similar terms and remaining maturities as of the applicable valuation date.

(2) The estimated fair value of our senior notes is based upon their market prices as of the applicable valuation date.

(3) We believe that the carrying value of our mortgage company loan borrowings approximates their fair value.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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