6.	Fair Value Measurements

ASC 820, Fair Value Measurements (“ASC 820”), as updated and amended by ASU 2011-04, defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table sets forth the fair values and methods used for measuring the fair values of financial instruments on a recurring basis:


			Fair Value
Financial Instrument	Hierarchy		June 30, 2013		December 31, 2012
			(Dollars in thousands)
Marketable securities (available-for-sale)

Equity securities		Level 1	$	368,579	$	208,818
Debt securities - maturity less than 1 year		Level 2		111,397		54,388
Debt securities - maturity 1 to 5 years		Level 2		138,606		277,514
Debt securities - maturity greater than 5 years		Level 2		15,859		11,218

Total available-for-sale securities			$	634,441	$	551,938


Mortgage loans held-for-sale, net		Level 2	$	92,463	$	119,953


Metropolitan district bond securities (available-for-sale)*		Level 3	$	13,835	$	5,818

These securities were recorded at cost at December 31, 2012 as they were still under the cost recovery method of accounting.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Cash and Cash Equivalents. Fair value approximates carrying value.

Marketable Securities. Consist primarily of: (1) fixed and floating rate interest earning debt securities, which may include, among others, United States government and government agency debt and corporate debt; (2) holdings in mutual fund equity securities which consist primarily of debt securities; (3) holdings in corporate equities; and (4) deposit securities, which may include, among others, certificates of deposit and time deposits. As of June 30, 2013 and December 31, 2012, all of our marketable securities were treated as available-for-sale investments and, as such, we have recorded all of our marketable securities at fair value with changes in fair value being recorded as a component of accumulated other comprehensive income.

The following table sets forth the amortized cost and estimated fair value of our available-for-sale marketable securities.


	June 30, 2013				December 31, 2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Homebuilding:
Equity security	$	368,037	$	368,579	$	208,279	$	208,818
Debt securities		241,074		241,825		306,793		310,647

Total homebuilding available-for-sale securities	$	609,111	$	610,404	$	515,072	$	519,465

Financial Services:
Total financial services available-for-sale debt securities	$	23,884	$	24,037	$	32,028	$	32,473


Total available-for-sale marketable securities	$	632,995	$	634,441	$	547,100	$	551,938

As of June 30, 2013 and December 31, 2012, our marketable securities (homebuilding and financial services in aggregate) were in a net unrealized gain position of $1.5 million and $4.8 million, respectively.

Mortgage Loans Held-for-Sale, Net. As of June 30, 2013, the primary components of our mortgage loans held-for-sale that are measured at fair value on a recurring basis are: (1) mortgage loans held-for-sale under commitments to sell; and (2) mortgage loans held-for-sale not under commitments to sell. At June 30, 2013 and December 31, 2012, we had $69.7 million and $108.3 million, respectively, of mortgage loans held-for-sale under commitments to sell for which fair value was based upon Level 2 inputs, which were the quoted market prices for those mortgage loans. At June 30, 2013 and December 31, 2012, we had $22.7 million and $11.8 million, respectively, of mortgage loans held-for-sale that were not under commitments to sell. The fair value for those loans was primarily based upon the estimated market price received from an outside party, which is a Level 2 fair value input.

Metropolitan District Bond Securities (Related Party). Are included in other assets in the Homebuilding section of our accompanying consolidated balance sheets. We acquired the Metropolitan District Bond Securities (“Metro Bonds”) from a quasi-municipal corporation in the state of Colorado (the “Metro District”), which was formed to help fund and maintain the infrastructure associated with a master-planned community owned and operated by our Company. The Board of Directors of the Metro District currently is comprised of employees of the Company and therefore is a related party. Cash flows received by the Company from these securities reflect principal and interest payments from the Metro District, which are supported by an annual levy on the taxable value of real estate and personal property within the Metro District’s boundaries and a one-time fee assessed on new homes closed in the Metro District. The Metro Bonds mature in 2037. However, if the unpaid principal and all accrued interest are not paid off at that date, the Company will continue to receive principal and interest payments into perpetuity until the unpaid principal and accrued interest is paid in full. Through the first quarter of 2013, we accounted for these securities under the cost recovery method and they were not carried at fair value in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30).

In the second quarter of 2013, we determined that these securities no longer were required to be accounted for under the cost recovery method due to an increase in the number of new homes closed coupled with the stabilization of property values within the Metro District. In accordance with ASC 310-30, we will adjust the bond principal balance on a prospective basis under the effective interest method based on estimated future cash flows expected to be collected. Furthermore, as this investment is accounted for as an available-for-sale asset, we will update its fair value on a quarterly basis, with the adjustment being recorded through other comprehensive income. The fair value is based upon a discounted future cash flow model that uses Level 3 inputs. The two primary unobservable inputs used in our discounted cash flow model are the forecasted number of homes to be closed, as they drive any increases to the tax base for the Metro District, and the discount rate. The following table provides quantitative data regarding each unobservable input and the sensitivity of fair value to potential changes in those unobservable inputs:

Quantitative Data

Sensitivity Analysis

Unobservable Input

Range

Weighted
Average

Movement in
Fair Value
from Increase
in Input

Movement in
Fair Value
from Decrease
in Input

Discount rate

6% to 15%

11.1

Decrease

Increase

Number of homes closed per year

0 to 118

Increase

Decrease

The table set forth below summarizes the activity for the three and six months ended June 30, 2013 and 2012 for our Metro Bonds.


	Three Months				Six Months
	Ended June 30,				Ended June 30,
	2013		2012		2013		2012
	(Dollars in thousands)
Balance at beginning of period	$	5,818	$	6,663	$	5,818	$	6,663
Increase in fair value (recorded in OCI)		7,354		—		7,354		—
Change due to accretion of principal		663		—		663		—
Cash receipts		—		—		—		—

Balance at end of period	$	13,835	$	6,663	$	13,835	$	6,663

Mortgage Repurchase Facility. Our Mortgage Repurchase Facility is at floating rates or at fixed rates that approximate current market rates and have relatively short-term maturities, generally within 30 days. The fair value approximates carrying value and is based on level 2 inputs.

Senior Notes. The estimated values of the senior notes in the following table are based on Level 2 inputs, including market prices of our notes and other homebuilder notes.


	June 30, 2013				December 31, 2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
5.375% Senior Notes due 2014, net	$	249,716	$	260,213	$	249,621	$	267,208
5.375% Senior Notes due 2015, net		249,915		263,550		249,895		268,867
5.625% Senior Notes due 2020, net		245,594		266,250		245,326		273,125
6.000% Senior Notes due 2043		350,000		318,500		—		—

Total	$	1,095,225	$	1,108,513	$	744,842	$	809,200