Note 6 - Fair Value Measurements

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

6. Fair Value Measurements

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements (“ASC 820”), 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, 2014		December 31, 2013
		(Dollars in thousands)
Marketable securities (available-for-sale)
Equity securities	Level 1	$	465,115	$	389,323
Debt securities - maturity less than 1 year	Level 2		2,079		72,577
Debt securities - maturity 1 to 5 years	Level 2		21,723		106,566
Debt securities - maturity greater than 5 years	Level 2		16,971		19,601
Total available-for-sale securities		$	505,888	$	588,067
Mortgage loans held-for-sale, net	Level 2	$	58,377	$	92,578
Metropolitan district bond securities (related party) (available-for-sale)	Level 3	$	14,291	$	12,729

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

The fair value of our cash and cash equivalents, restricted cash, trade and other receivables, inventories, prepaid and other assets, accounts payable, and accrued liabilities approximate their carrying value.

Marketable Securities.  We have marketable debt and equity securities.  Our equity securities consist primarily of holdings in mutual fund securities, which invest mostly in debt securities. The remaining equity securities in our investment portfolio are holdings in corporate equities. Our debt securities consist primarily of fixed and floating rate interest earning debt securities, which may include, among others, United States government and government agency debt and corporate debt. We measure the fair value of our debt securities using a third party pricing service that either provides quoted market prices in active markets for identical or similar securities, which are level 1 inputs, or uses observable inputs for their pricing, which are level 2 inputs. As of June 30, 2014 and December 31, 2013, 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, 2014				December 31, 2013
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Homebuilding:
Equity securities	$	453,152	$	460,925	$	375,142	$	385,303
Debt securities		31,051		31,573		181,635		183,718
Total homebuilding available-for-sale securities	$	484,203	$	492,498	$	556,777	$	569,021
Financial Services:
Equity securities	$	4,000	$	4,190	$	4,000	$	4,020
Debt securities		8,950		9,200		14,721		15,026
Total financial services available-for-sale debt securities	$	12,950	$	13,390	$	18,721	$	19,046
Total available-for-sale marketable securities	$	497,153	$	505,888	$	575,498	$	588,067

As of June 30, 2014 and December 31, 2013, our marketable securities were in net unrealized gain positions totaling $8.7 millionand $12.6 million, respectively. Our marketable securities that were in unrealized loss positions aggregated to unrealized losses of $0.7 million and $1.1 million as of June 30, 2014 and December 31, 2013, respectively. The table below sets forth the debt and equity securities that were in an aggregate loss position. We do not believe that the aggregate unrealized loss related to our debt or equity securities as of June 30, 2014 is material to our operations.

	June 30, 2014							December 31, 2013
	Number of Securities in Loss Position		Aggregate Loss Position			Aggregate Fair Value of Securities in a Loss Position		Number of Securities in Loss Position		Aggregate Loss Position			Aggregate Fair Value of Securities in a Loss Position
Type of Investment	(Dollars in thousands)
Debt		40	$	(221	)	$	12,509		72	$	(430	)	$	46,440
Equity		3		(480	)		108,403		7		(713	)		14,174
Total		43	$	(701	)	$	120,912		79	$	(1,143	)	$	60,614

The following tables set forth gross realized gains and losses from the sale of available-for-sale marketable securities, which were included in either interest and other income in the homebuilding section or interest and other income in the financial services section of our consolidated statements of operations.

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(Dollars in thousands)
Gross realized gains on sales of available-for-sale securities
Equity securities	$	-		$	216		$	5,518		$	216
Debt securities		100			128			1,920			260
Total	$	100		$	344		$	7,438		$	476
Gross realized losses on sales of available-for-sale securities
Equity securities	$	(467	)	$	-		$	(709	)	$	-
Debt securities		(182	)		(1,006	)		(373	)		(1,225	)
Total	$	(649	)	$	(1,006	)	$	(1,082	)	$	(1,225	)
Net realized gain (loss) on sales of available-for-sale securities	$	(549	)	$	(662	)	$	6,356		$	(749	)

Mortgage Loans Held-for-Sale, Net.  As of June 30, 2014, 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, 2014 and December 31, 2013, we had $48.9 million and $66.1 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, 2014 and December 31, 2013, we had $9.5 million and $26.5 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).  The Metropolitan district bond securities (the “Metro Bonds”) are included in the homebuilding section of our accompanying consolidated balance sheets. We acquired the 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 being developed by our Company. Cash flows received by the Company from these securities reflect principal and interest payments from the Metro District that 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 permits obtained by MDC in the Metro District. The stated year of maturity for the Metro Bonds is 2037. However, if the unpaid principal and all accrued interest are not paid off by the year 2037, the Company will continue to receive principal and interest payments in perpetuity until the unpaid principal and accrued interest is paid in full. Since 2007 and 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 Topic 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 delivered in the community coupled with improvements in property values within the Metro District. In accordance with ASC 310-30, we will adjust the bond principal balance on a prospective basis using an interest accretion model that utilizes 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, which 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 table below provides quantitative data, as of June 30, 2014, 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
Number of homes closed per year	0 to 120	93	Increase	Decrease
Discount rate	6% to 16%	11.9%	Decrease	Increase

The table set forth below summarizes the activity for our Metro Bonds:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
	(Dollars in thousands)
Balance at beginning of period	$	13,027	$	5,818	$	12,729	$	5,818
Increase in fair value (recorded in other comprehensive income)		959		7,354		959		7,354
Change due to accretion of principal		305		663		603		663
Cash receipts		-		-		-		-
Balance at end of period	$	14,291	$	13,835	$	14,291	$	13,835

Mortgage Repurchase Facility. The debt associated with 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 other homebuilder bonds.

	June 30, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
5⅜% Senior Notes due December 2014, net	$	-	$	-	$	249,814	$	258,750
5⅜% Senior Notes due July 2015, net		249,956		259,850		249,935		262,562
5⅝% Senior Notes due February 2020, net		246,156		270,938		245,871		259,688
5½% Senior Notes due January 2024, net		250,000		258,250		-		-
6% Senior Notes due January 2043		350,000		329,613		350,000		305,083
Total	$	1,096,112	$	1,118,651	$	1,095,620	$	1,086,083