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

defined as observable inputs such as quoted prices in active markets; Level

defined as inputs, other than quoted prices in active markets, that are either directly or indirectly observable; and Level

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	March 31, 2017		December 31, 2016
		(Dollars in thousands)
Marketable equity securities (available-for-sale)	Level 1	$	99,865	$	96,206
Mortgage loans held-for-sale, net	Level 2	$	97,373	$	138,774
Metropolitan district bond securities (related party) (available-for-sale)	Level 3	$	31,004	$	30,162

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

March

31,

2017

and

December

31,

2016.

Cash and cash equivalents, restricted cash, trade and other receivables, prepaid and other assets, accounts payable, accrued liab

ilities and borrowings on our revolving credit facility

Fair value approximates carrying value.

Marketable s

ecurities

. As of

March

31,

2017

and

December

31,

2016,

we held marketable equity securities, which consist of holdings in corporate equities, preferred stock and exchange traded funds. As of

March

31,

2017

and

December

31,

2016,

all of our equity securities were treated as available-for-sale investments and as such, are recorded at fair value with all changes in fair value initially recorded through AOCI, subject to an assessment to determine if an unrealized loss, if applicable, is other-than-temporary.

Each quarter we assess all of our securities in an unrealized loss position for a potential other-than-temporary impairment (“OTTI”)

. If the unrealized loss is determined to be other-than-temporary, an OTTI is recorded in

other-than-temporary impairment of marketable securities in the homebuilding or financial services sections of our

consolidated statements of operations and comprehensive income.

During the

three

months ended

March

31,

2017

and

2016,

we recorded pretax OTTI’s of

$0.1

million and

$0.4

million, respectively, for certain of our equity securities that were in an unrealized loss position as of the end of each respective period.

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

	March 31, 2017
	Cost Basis		OTTI			Net Cost Basis		Fair Value
	(Dollars in thousands)
Homebuilding equity securities	$	49,944	$	(730	)	$	49,214	$	62,316
Financial services equity securities		35,710		(348	)		35,362		37,549
Total marketable equity securities	$	85,654	$	(1,078	)	$	84,576	$	99,865

	December 31, 2016
	Cost Basis		OTTI			Net Cost Basis		Fair Value
	(Dollars in thousands)
Homebuilding equity securities	$	48,910	$	(685	)	$	48,225	$	59,770
Financial services equity securities		35,885		(373	)		35,512		36,436
Total marketable equity securities	$	84,795	$	(1,058	)	$	83,737	$	96,206

As of

March

31,

2017

and

December

31,

2016,

our marketable equity securities were in net unrealized gain positions totaling

$15.3

million and

$12.5

million, respectively.

Our individual marketable equity securities that were in unrealized loss positions, excluding those that were impaired as part of any OTTI, aggregated to an unrealized loss of

$0.5

million and

$0.5

million as of

March

31,

2017

and

December

31,

2016,

respectively.

The table below sets forth the aggregated unrealized losses for individual equity securities that were in unrealized loss positions but did not have OTTIs recognized.

We do not believe the decline in the value of these marketable securities as of

March

31,

2017

is other-than-temporary.

	March 31, 2017							December 31, 2016
	Number of Securities in a Loss Position		Aggregate Loss Position			Aggregate Fair Value of Securities in a Loss Position		Number of Securities in a Loss Position		Aggregate Loss Position			Aggregate Fair Value of Securities in a Loss Position
	(Dollars in thousands)
Marketable equity securities		2	$	(500	)	$	3,000		5	$	(457	)	$	6,045

The following table sets forth gross realized gains and losses from the sale of available-for-sale marketable securities. We record the net amount of these gains and losses to either other expense or interest and other income, dependent upon whether there is a net realized loss or gain, respectively, in the homebuilding section or financial services section of our consolidated statements of operations and comprehensive income.

	Three Months Ended
	March 31,
	2017			2016
	(Dollars in thousands)
Gross realized gains on sales of available-for-sale securities	$	590		$	91
Gross realized losses on sales of available-for-sale securities		(29	)		(1,006	)
Net realized gain (loss) on sales of available-for-sale securities	$	561		$	(915	)

Mortgage

oans

eld-for-

ale,

et.

Our mortgage loans held-for-sale, which are measured at fair value on a recurring basis, include

(1)

mortgage loans held-for-sale that are under commitments to sell and

(2)

mortgage loans held-for-sale that are not under commitments to sell. At

March

31,

2017

and

December

31,

2016,

we had

$67.7

million and

$96.2

million, respectively, of mortgage loans held-for-sale under commitments to sell. The fair value for those loans was based on quoted market prices for those mortgage loans, which are Level

fair value inputs. At

March

31,

2017

and

December

31,

2016,

we had

$29.7

million and

$42.6

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

fair value input.

Gains on sales of mortgage loans, net, were

$8.5

million and

$5.6

million for the

three

months ended

March

31,

2017

and

2016,

respectively, and are included as a component of revenues in the financial services section of our consolidated statements of operations and comprehensive income.

Metropolitan district bond securities (related party).

The metropolitan district bond securities (the “Metro Bonds”) are included in the homebuilding section of our 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, which are generally received in the

fourth

quarter, and are supported by an annual levy on the taxable assessed value of real estate and personal property within the Metro District’s boundaries. 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.

In accordance with ASC Topic

310

30,

Loans and Debt Securities Acquired with Deteriorated Credit Quality

(“ASC

310

30”),

we adjust the bond principal balance 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

inputs. The primary unobservable inputs used in our discounted cash flow model are

(1)

the forecasted number of homes to be closed, as they drive increases to the tax paying base for the Metro District,

(2)

the forecasted assessed value of those closed homes and

(3)

the discount rate. Cash receipts, which are scheduled to be received in the

fourth

quarter, reduce the carrying value of the Metro Bonds. The increases in the value of the Metro Bonds during the past

two

years are primarily based on a larger percentage of future cash flows coming from homes that have closed, which utilize a lower discount rate as those cash flows have a reduced amount of risk. The table below provides quantitative data, as of

March

31,

2017,

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

Forecasted number of homes closed per year

120

107

Increase

Decrease

Forecasted assessed value

$401,000

$1,200,000

558,000

Increase

Decrease

Discount rates

12%

7.5

Decrease

Increase

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

	Three Months Ended
	March 31,
	2017		2016
	(Dollars in thousands)
Balance at beginning of period	$	30,162	$	25,911
Increase in fair value (recorded in other comprehensive income)		382		950
Change due to accretion of principal		460		416
Cash receipts		-		-
Balance at end of period	$	31,004	$	27,277

Mortgage Repurchase Facility.

The debt associated with our mortgage repurchase facility (see Note

for further discussion) is at floating rates that approximate current market rates and have relatively short-term maturities, generally within

days. The fair value approximates carrying value and is based on Level

inputs.

Senior Notes

. The estimated values of the senior notes in the following table are based on Level

inputs, which primarily reflect estimated prices for our senior notes which were provided by multiple sources.

	March 31, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
5⅝% Senior Notes due February 2020, net	$	247,144	$	264,208	$	246,915	$	265,611
5½% Senior Notes due January 2024, net		248,439		257,325		248,391		258,800
6% Senior Notes due January 2043, net		346,354		309,563		346,340		297,087
Total	$	841,937	$	831,096	$	841,646	$	821,498