<p>Here are some of the highlights of the Centex Q1 conference call. Looks like affordability seems to be a problem in southern California. </p>
<p>Dan Oppenheim Banc of America Securities</p>
<p>Thanks. Tim, in October of '05, you were out there before many others in the industry, talking about how the conditions we'll see in the coming quarters and years could be a lot tougher than what we see in the past and responded appropriately in terms of focusing more in cash flow. Little bit concerned hearing the comments in terms of stabilization here. Seems a little bit more optimistic. How is that changing if at all your strategy in terms of running the business and thoughts on cash flow here?</p>
<p>Tim Eller </p>
<p>CEO Centex Homes</p>
<p>Well, it's really not change it go from even October of '05. We are really focused on the fundamentals, Dan. And let me just reiterate that the market remains difficult. And I don't see any change in that for some time. So, while I might have observed that some markets seem to be stabilizing, overall, we have chronic over supply issue. And a chronic affordability issue that we are going to have to deal with for quite some time. So for us, it's just focusing on the fundamentals right now. Selling homes in a very tough environment, minimizing our inventory, structuring for profitability at volume levels far less than they were a couple of years ago. Continuing generate cash so we have balance sheet flexibility for now and in the future. And aggressively attack all of our costs.</p>
<p>Jim Wilson JMT Securities - Analyst</p>
<p>And I guess one other, I know you mentioned southern California being weak a couple of times. But what does northern California look like for you guys?</p>
<p>Tim Eller </p>
<p>Pretty good is relative. I think the issues in southern California are more around -- it was a heavy, alt-A stated income market and prices rose very quickly. Beyond the kind of the agency threshold of $417,000 for a Fanny Mae, Freddie Mack mortgage product. So the average price is over $500,000. In that market southern California, I'm speaking about, prices really need to get back down to the area of agency affordability. So that's why that one's going to be impacted more than northern California.</p>
<p>Dan Oppenheim </p>
<p>Thanks, just a quick follow-up. Was just wondering and thinking about some of the credit issues. What would you say the trend has been in some of the, let's call it the credit constrained markets, out there, we are typically seeing the lower FICO scores, lower down payments? If you can just comment on what the trends were over the course of the quarter.</p>
<p>Cathy Smith Centex Corporation - CFO </p>
<p>Yes. We are seeing actually a reversion back to a more traditional product. So even in the more challenged markets, now, as Tim mentioned, southern California has an affordability issue. Houston, we are actually seeing more of a reversion to more traditional products.</p>
<p>Dan Oppenheim </p>
<p align="left">Not so much in terms of that, but in terms of your orders in those markets as the quarter went on. Just given the, I imagine you are seeing a reversion back to those products, but that doesn't mean you have 100% of the people that is just the whatever percent of the people are still using it and the sub prime people aren't getting the mortgages.</p>
<p>Tim Eller </p>
<p>We did have some shift. But again our sales in Houston are down 30%, our cancellations are up. Or cancellations in southern California are fairly high, still continuing fairly high, as some buyers can't find alternatives can't qualify for the mortgages. So in those markets, more of those southern California/Texas markets that be typically hit.</p>
<p>Greg Gieber A.G. Edwards - Analyst</p>
<p>Okay. Second question I had, I mean you hit quite well what the nature of the problem of the market is. You said chronic over supply, chronic affordability. I want to is ask you how you are addressing the affordability issue. If you look down the road say to you know, new product, you'll start bringing out in '08 or '09 whenever, just how much lower do you think you'll have to go with your ASPs to the point that you have product that people aren't stretching to get into and where affordability ceases to be an issue?</p>
<p>Tim Eller </p>
<p>That is a good question, Greg. We have done some work on that. Actually, what we are doing is looking at what the markets can afford from a mortgage standpoint, given the current level, given the current mortgage products that are out there. The incomes that we know are out there and just backing into a sales price, based on conventional underwriting standards. What that is giving us is targeted sales prices by neighborhood, actually, in those markets. And in some cases, in many cases we are able to recraft our neighborhoods and our products in order to meet those. And that is the exact process we are going through in southern California. Southern California we have had a Fox and Jacobs brand for several years and that is proving to be a big benefit to us as we kind of convert most of our neighborhoods to a Fox and Jacobs-type product. Very value-oriented. Very efficient product with very good turns and good affordability.</p>
