Note 6 - Fair Value Measurements

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

6.             Fair Value Measurements

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	December 31, 2014		December 31, 2013
		(Dollars in thousands)
Marketable securities (available-for-sale)
Equity securities	Level 1	$	129,560	$	389,323
Debt securities - maturity less than 1 year	Level 2		1,511		72,577
Debt securities - maturity 1 to 5 years	Level 2		7,643		106,566
Debt securities - maturity greater than 5 years	Level 2		17,426		19,601
Total available-for-sale securities		$	156,140	$	588,067
Mortgage loans held-for-sale, net	Level 2	$	88,392	$	92,578
Metropolitan district bond securities (related party) (available-for-sale)	Level 3	$	18,203	$	12,729

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

Cash and cash equivalents, restricted cash, trade and other receivables, prepaid and other assets, accounts payable, and accrued liabilities. Fair value approximates carrying value.

Marketable Securities.  We have marketable debt and equity securities. Our equity securities consist of holdings in mutual fund securities, which invest in debt securities and 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 prices in less active markets for identical or similar securities or uses observable inputs for their pricing, both of which are level 2 inputs. As of December 31, 2014 and 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 AOCI.

Each quarter we assess all of our securities in an unrealized loss position for potential other-than-temporary impairment (“OTTI”). Our assessment includes a consideration of many factors, both qualitative and quantitative, including the amount of the unrealized loss, the period of time the security has been in a loss position, the financial condition of the issuer and whether we have the intent and ability to hold the securities, among other factors. During third quarter of 2014, we recorded a pre-tax OTTI of $4.3 million for certain of our mutual funds that were in a loss position as of quarter end. The OTTI is included in other-than-temporary impairment of marketable securities in the homebuilding section of our consolidated statements of operations.

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

	December 31, 2014				December 31, 2013
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Homebuilding:
Equity securities	$	116,009	$	120,274	$	375,142	$	385,303
Debt securities		20,660		20,604		181,635		183,718
Total homebuilding available-for-sale marketable securities	$	136,669	$	140,878	$	556,777	$	569,021
Financial Services:
Equity securities	$	9,028	$	9,286	$	4,000	$	4,020
Debt securities		5,930		5,976		14,721		15,026
Total financial services available-for-sale marketable securities	$	14,958	$	15,262	$	18,721	$	19,046
Total available-for-sale marketable securities	$	151,627	$	156,140	$	575,498	$	588,067

As of December 31, 2014 and 2013, our marketable securities were in a net unrealized gain position totaling $4.5 millionand $12.6 million, respectively. Our marketable securities which were in unrealized loss positions aggregated to unrealized losses of $3.1 million and $1.1 million as of December 31, 2014 and 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 December 31, 2014 is material to our operations.

	December 31, 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
	(Dollars in thousands)
Type of Investment
Debt		52	$	(359	)	$	14,536		72	$	(430	)	$	46,440
Equity		6		(2,738	)		74,999		7		(713	)		14,174
Total		58	$	(3,097	)	$	89,535		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.

	Year Ended December 31,
	2014			2013			2012
	(Dollars in thousands)
Gross realized gains on sales of available-for-sale securities
Equity securities	$	7,719		$	1,251		$	-
Debt securities		2,432			83			608
Total	$	10,151		$	1,334		$	608
Gross realized losses on sales of available-for-sale securities
Equity securities	$	(6,183	)	$	-		$	-
Debt securities		(952	)		(3,794	)		(1,287	)
Total	$	(7,135	)	$	(3,794	)	$	(1,287	)
Net realized gain (loss) on sales of available-for-sale securities	$	3,016		$	(2,460	)	$	(679	)

Mortgage Loans Held-for-Sale, Net.  As of December 31, 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 December 31, 2014 and December 31, 2013, we had $72.3 million and $65.1 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 December 31, 2014 and December 31, 2013, we had $13.6 million and $25.9 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.   

Metro District Bond Securities (Related Party).  The Metro District Bond Securities (“Metro Bonds”) are included in the homebuilding section of our accompanying consolidated balance sheets. Cash flows received by the Company from these securities reflect principal and interest payments from the quasi-municipal corporation in the state of Colorado (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 the stabilization of property values within the Metro District. In accordance with ASC 310-30, we now 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 update its fair value on a quarterly basis, with the adjustment being recorded through AOCI. 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 December 31, 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 123		93	Increase	Decrease
Discount rate		5.2% to 14%		10.2%	Decrease	Increase

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

	Year Ended December 31,
	2014			2013
	(Dollars in thousands)
Balance at beginning of period	$	12,729		$	5,818
Increase in fair value (recorded in other comprehensive income)		6,114			6,373
Change due to accretion of principal		1,405			1,192
Cash receipts		(2,045	)		(654	)
Balance at end of period	$	18,203		$	12,729

Mortgage Repurchase Facility. The debt associated with our Mortgage Repurchase Facility (see Note 16 for further discussion) 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.

	December 31, 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		-		-		249,935		262,562
5⅝% Senior Notes due February 2020, net		246,450		257,950		245,871		259,688
5½% Senior Notes due January 2024		250,000		242,608		-		-
6% Senior Notes due January 2043		350,000		296,555		350,000		305,083
Total	$	846,450	$	797,113	$	1,095,620	$	1,086,083

Inventories.  The table below sets forth the carrying value, at each year end, of all inventories that were impaired during each year presented.

	Carrying Value of
	Impaired Inventory at
	December 31, 2014		December 31, 2013
	(Dollars in thousands)
West	$	-	$	-
Mountain		4,378		-
East		2,331		4,187
Total	$	6,709	$	4,187

Inventories with carrying values prior to impairment of $10.7 million and $5.8 million were determined to be impaired during the years ended December 31, 2014 and 2013, respectively. The carrying value for some of these inventories at their respective year ends may not represent the fair value they were impaired to due to activities that occurred subsequent to the measurement date. The fair values of impaired inventories were determined using Level 3 inputs. We generally determine the estimated fair value of each subdivision by determining the present value of the estimated future cash flows at discount rates that are commensurate with the risk of the subdivision under evaluation.