MDC generated net income of $146 million or $1.99 per diluted share in the third quarter of 2021, driven by a combination of strong revenue growth, continued price increases and improving overhead leverage.
Our home sales gross margin of 23.5% represented a 300 basis points improvement over the prior year period as our new home pricing stayed ahead of cost inflation.
We also made further improvements to our fixed cost leverage as our SG&A expense fell 80 basis points year-over-year to 9.6%.
Order activity remained healthy during the quarter at 4.1 sales per community per month.
This represents the second highest third quarter order pace for the company in the last 15 years.
We ended the quarter with a debt-to-capital ratio of 39.7% and a net debt-to-capital ratio of 23.7%.
During the quarter, we issued $350 million of senior notes due in 2061 [phonetic] 0:05:40 at an interest rate of 3.966 and made a tender offer for over $120 million of our senior notes due 2024, which carry an interest rate of 5.5%.
And while the early retirement of debt resulted in a $12.2 million charge this quarter, we now have a lower cost of capital and a debt maturity schedule that extends out 40 years.
Our total liquidity position at the end of the quarter stood at just over $2 billion, giving us plenty of capital to scale our operations in the coming years.
It will also allow us to continue paying our industry leading dividend, which currently stands at $2 per share on an annualized basis.
With the West region posting the best order pace during the quarter at 4.9 homes per community per month, followed by the East at 3.7 and our Mountain region at 3.0.
Pricing remained firm within our communities, and we did not win this any widespread use of incentives or discounting in our markets as each of the segments posted home sales gross margins in excess of 20%.
Our lots owned and controlled at the end of the third quarter increased by 37% year-over-year, giving us a great opportunity to capitalize on the positive housing fundamentals in our markets.
During the third quarter, we generated net income of $146 million or $1.99 per diluted share, representing a 48% increase from the third quarter of 2020.
Home sale revenues grew 26% year-over-year to $1.26 billion, while gross margin from home sales improved by 300 basis points.
The growth in home sale revenues and margin expansion resulted in a 62% increase in pre-tax income from our homebuilding operations to $165.2 million.
As Larry mentioned, we accelerated the retirement of $123.6 million of our unsecured notes due in January 2024 through a cash tender offer during the quarter.
The retirement resulted in a loss of $12.2 million, which is included in homebuilding pre-tax income.
Financial services pre-tax income increased 13% year-over-year to $27.5 million.
Our mortgage company also benefited from a $3.5 million gain recognized on the sale of conventional mortgage servicing rights during the period.
Our tax rate increased from 21.5% to 24.3% for the 2021 third quarter.
For the remainder of the year, we currently estimate an effective tax rate of approximately 24.5%, excluding any discrete items and not accounting for any potential changes in tax rates or policy.
Homes delivered increased 13% year-over-year to 2,419 during the third quarter, driven by an increase in the number of homes we had in backlog to start the quarter.
The number of homes delivered during the quarter was below our previously estimated range of 2,500 to 2,700 units and was a direct result of the extended cycle times that we experienced.
The average selling price of homes delivered during the quarter increased 12% to about $520,000.
The increase was a result of price increases implemented across the majority of our communities over the past 12 months.
For the fourth quarter, we are anticipating home deliveries to reach between 27,300 units, with an average selling price between $530,000 and $540,000.
Gross margin from home sales improved by 300 basis points year-over-year to 23.5%.
Gross margin from home sales for the 2021 of fourth quarter is expected to increase to between 23.5% and 24%, assuming no impairments or warranty adjustments.
Our total dollar SG&A expense for the 2021 third quarter increased by $16.5 million from the 2020 third quarter, driven primarily by increased general and administrative expenses.
Our SG&A expense as a percentage of home sale revenues decreased 80 basis points year-over-year to 9.6%.
General and administrative expenses totaled $59.9 million during the third quarter due to increases in compensation related expenses, including increased bonus and stock-based compensation accruals.
We currently estimate that our general and administrative expenses will grow to between $65 million and $70 million for the fourth quarter of 2021.
Marketing expenses increased $900,000 as a result of increased master marketing fees relating to increased closings volume.
However, marketing expenses as a percentage of home sale revenues were down 50 basis points year-over-year as we were able to continue limiting advertising expenses in this high demand environment.
Our commission expense as a percentage of home sale revenues decreased 60 basis points year-over-year as we have taken steps to control these costs during this period of strong demand for new housing.
The dollar value of our net orders decreased 21% year-over-year to $1.31 billion due to a 32% decrease in unit net orders.
This decrease was driven by a 33% year-over-year reduction in our monthly sales absorption pace.
Our sales absorption pace for the third quarter of 2021 was a healthy 4.1 orders per community per month.
While this represented a year-over-year decrease from the third quarter of 2020, it was a 14% increase from the pre pandemic levels experienced in the third quarter of 2019.
The average selling price of our net orders increased 16% year-over-year as we have raised prices across most of our communities over the past 12 months.
The dollar value of homes in backlog increased 38% year-over-year despite the decrease in third quarter activity.
While cycle times remain the biggest challenge to our backlog conversion efforts, we believe we are well positioned entering the fourth quarter with construction started on 84% of our backlog and 42% at frame stage of construction or beyond.
We approved 5,892 lots for acquisition during the quarter, representing a 54% increase year-over-year.
This brings the total number of lots approved for acquisition during the year to 15,978 lots and marks the third time in the last four quarters, our approval activity exceeded to 5,000 lots.
We closed on 3,214 lots during the third quarter, which included about a 100 finished lots within our first subdivision in Austin, Texas.
Total land acquisition and development spend for the quarter was $420 million.
As a result of our land acquisition and approval activity, our total lot supply to end the quarter was nearly 37,000 lots, representing a 37% increase from the prior year quarter.
In addition, 34% of our lot supply was controlled via option as of period end.
Our active subdivision count was at 203 to end the quarter, up 5% from 194 a year ago.
Active subdivisions in the Mountain segment were down 8% year-over-year.
However, we do expect to see an increase from our 203 active communities at the end of the third quarter before we reached the end of the 2022 first quarter in time for the spring selling season.
Our financial position remains strong with over $2 billion of total liquidity and a net debt-to-capital ratio of 23.7% as of quarter end, providing us with the ability to continue to grow our business and invest in our new markets.
Without their efforts, we would not be in the position we are today, poised to deliver more than 10,000 new homes to our homebuyers for the 2021 full year.

Summary:
MDC generated net income of $146 million or $1.99 per diluted share in the third quarter of 2021, driven by a combination of strong revenue growth, continued price increases and improving overhead leverage.
During the third quarter, we generated net income of $146 million or $1.99 per diluted share, representing a 48% increase from the third quarter of 2020.
Home sale revenues grew 26% year-over-year to $1.26 billion, while gross margin from home sales improved by 300 basis points.
The number of homes delivered during the quarter was below our previously estimated range of 2,500 to 2,700 units and was a direct result of the extended cycle times that we experienced.
The average selling price of homes delivered during the quarter increased 12% to about $520,000.
For the fourth quarter, we are anticipating home deliveries to reach between 27,300 units, with an average selling price between $530,000 and $540,000.
The dollar value of our net orders decreased 21% year-over-year to $1.31 billion due to a 32% decrease in unit net orders.
The dollar value of homes in backlog increased 38% year-over-year despite the decrease in third quarter activity.