Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Jeremy Pinchot with MCH.
Jeremy Pinchot - MCH
Hi, thanks for taking my call. I was just hoping you could go through some of the details of the use of the cash in the quarter.
Cathy Smith
Sure. High level inventories about $200 million, accounts payable being down, use about 150, taxes about 160, related to our CCG sale, our construction sale and the debt repurchase for about 55.
Jeremy Pinchot - MCH
Right. Thanks a bunch. Appreciate it.
Cathy Smith
Sure.
Operator
Your next question comes from Kenneth Zener with Merrill Lynch.
Tim Eller
Good morning.
Cathy Smith
Good morning.
Kenneth Zener - Merrill Lynch
I wonder, since your accounting tracks closings on the unit basis can you tell us what benefits COGS got based on prior charges running through your income statement?
Cathy Smith
Yeah it was really predetermined, just as I said last quarter. In total less than 1%.
Kenneth Zener - Merrill Lynch
Can you quantify with that actually, just so we can get a good sense what the core margins are adding back on a forward basis.
Cathy Smith
Yeah, it was less than 1% of the total impairments we've written. So we had closings in about 75 of the neighborhoods. 75 neighborhoods had closings with impairments this quarter.
Kenneth Zener - Merrill Lynch
Okay. To me it just seems like a dollar value going forward would be useful to kind of reset the reported. But I guess, what percent of your total communities have been impaired in total and what percent of this quarter's impairments were reimpairments?
Cathy Smith
Yeah. We had only four that were reimpairments this quarter, and out of the total 1,100 communities, which we look at our neighborhoods. We look at about 1,100 for impairment; we've impaired about 100 in total this quarter.
We were about 29 before those were second time impairments.
Operator
Your next question come Nishu Sood with Deutsche Bank.
Nishu Sood - Deutsche Bank
Thanks. Good morning, guys.
Cathy Smith
Good morning.
Nishu Sood - Deutsche Bank
So first question I wanted to ask about your recent decision to exit the Central Coast market. I imagine that was probably a pretty small part of your business.
But just wanted to get the thought process, the thinking behind that, and maybe what that might tell us about your thoughts about your broader portfolio of where you're positioned and where you're not.
Tim Eller
Well, we're looking at all of our markets in terms of strategic importance and predictability and the ability to generate scale and share. So we have exited a couple of markets that don't meet those criteria, or where the business will not have just predictable and scalable business model.
But I would expect that we'll continue to participate in most of the top 50 markets, 35 to 40 of the top 50 markets is really our target.
Nishu Sood - Deutsche Bank
Right, okay. And second question, I just wanted to ask about the cash flow outlook, which I think you might have lowered that from $1 billion, you had might have said last quarter to $750 million this quarter.
I was just wondering, your fundamentals relative to the other builders seem to -- seen a little more stability from the calendar first quarter to the calendar second quarter. So I was just wondering what was the driver given your results were a little bit more consistent? And what was the driver in terms of lowering your cash flow forecast?
Cathy Smith
Really it's the-- you are correct, and really it's really just the uncertainty we continue to see in the market and our current expectations on earnings.
Operator
Your next question comes from Steven East with Palie (ph) Capital.
Steven East - Palie Capital
Good morning.
Cathy Smith
Good morning, Steven.
Tim Eller
Good morning, Steven.
Steven East - Palie Capital
Tim, you mentioned tighter lending standards in Texas. Could you just talk a little bit about what you're seeing overall through the market? And how much you all think that's impacting demand right now? And what the trends are?
Tim Eller
Well, the liquidity I referred to is primarily at the lower FICO scores, and Texas tends to have lower FICO scores. So markets that are particularly in Houston but also in Dallas are impacted by the loss of the stated income, lower FICO score mortgage products.
Texas is typically in FHA market, has been and will return to that, but there will be a transition process.
Steven East - Palie Capital
Okay. Do you have any idea how much you think it's hurting overall demand?
Tim Eller
In Houston, for example, our sales are down about 30%. A year ago at this time they are fairly robust.
Steven East - Palie Capital
Okay. Then the other question, Cathy you talked about the quarterly progression. Could you put a little color around that and what's going on with pricing trends and the gross margins and the new orders, that type of thing?
Cathy Smith
Well, as we said, as I shared in the comments, the average sales price has come down a little bit. And we did share that. When we say that more of our neighborhoods seem to be finding or divisions seem to be finding some level of stability, it is really around finding a consistent sales per neighborhood type of a pace.
And now, obviously, that is at a higher discount rate, as we also shared discounts, were up a little bit more. And then cancellation rates have continued to two quarters in a row at least have continued to come down and we're seeing that again more consistently in some of our neighborhoods.
Operator
Your next question comes from Susan Berliner with Bear Stearns.
Susan Berliner - Bear Stearns
Good morning. First question was, I was curious about your comment about, I guess, each month and stabilizing a little bit because it seems pretty different from the other builders.
So I'd love to hear any additional specifics you can give on that.
Cathy Smith
Yeah. So first let me say, we know that no single point makes a trend and the market does remain difficult. But we are well prepared in that market. When I say the -- as I've mentioned, the quarter started out weaker, April and May, and then finished a little stronger June.
But when I say what do we see in the markets? How we look at it is literally down at the neighborhood level. And the first thing we have to do is find a predictable pace and that does change.
Even when we feel like we found a predictable pace it may change again the next week or something. So we have to continue to adjust. But that's really the basis of my comments around that and then that every month getting continually worse seems to -- that pattern seems to have been gone.
Susan Berliner - Bear Stearns
And my follow-up question is regarding the debt. Did you buy bonds in the open market? And is that something you would continue to do?
Cathy Smith
Yes. We did buy them in the open market at a discount and will continue to pursue that opportunistically as appropriate based on the cash position.
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Operator
Your next question comes from Stephen Kim with Citigroup.
Stephen Kim - Citigroup
Thanks. I was wondering if you could comment a little bit on your land ownership position. First of all, in terms of how you set your targets, or your goals, on how much land you want to own at this particular point in the cycle. Do you do it as a percent of, you know, as a multiple of the last 12 months?
I know in the past you sort of had an anticipation for what your sales rates would be. And you would sort of try to hold a certain number of years, based on that projection. But in light of this current environment, I was wondering if you would maybe change that. So if you can give us a sense for your methodology and what your goals are on land ownership.
Tim Eller
Steven, our goals have been consistently over the course of really many cycles, somewhere between one and a half and two years supply owned. And then about that much or perhaps more optioned. So today, when we look at where we are, we are about three years a little over three years owned.
So our goal is to get back down below two and at this stage of the cycle I think 1.5 would be very appropriate. And as we see how the landmark is going to evolve, we expect there to be a surplus of land in various stages of development, either entitled partially developed or fully developed that will be available to us.
And allow us to be lower on our own positioned certainly than we are now. That's one reason we're walking away from the options that we walked away from, with 3.3 years owned supply, we simply don't need to buy more land in many markets.
Stephen Kim - Citigroup
Great. And the -- I assume that three years you talked about was as a -- as a percentage of -- or as a multiple of trailing last 12 months. My second question was related to goodwill. Some of the builders that we've observed have written off goodwill over the -- you know, over the past 6 months to 12 months.
I was wondering whether or not you know your feeling was that there was any -- I know you don't have a lot. But if there was any reason to sort of scrutinize the goodwill that you currently have?
Cathy Smith
Great question on goodwill. And as you said, we don't have a lot. We have a couple $100 million in total. And we do as you can imagine, evaluate that goodwill and its value on a very, on a periodic basis. So at this time don't see any issue there. But we will continue to evaluate it.
Operator
Your next question comes from Carl Reichardt with Wachovia. Sir, your line is open.
Carl Reichardt - Wachovia
Hi. Sorry about that.
Cathy Smith
Good morning, Carl.
Carl Reichardt - Wachovia
Sorry Cathy. I had a question about the FIN48 charge the $200 million hit the book, it's in payables now. When do you or do you anticipate a resolution of that? When could we expect that in your mind? And then I assume what you get then is a move down in payables and an increase back in the book. Is that how it works?
Cathy Smith
Yeah. You're about right. First, to answer your question on timing. That one is a little uncertain. As we disclosed in our K, our 10K, the majority of the FIN 48 adjustment is associated with an audit of our '01 through '04 tax years. And so that is the vast majority of it. So that will go through the due course of settling that outstanding audit.
So that will take a little time. That could be this year, late in the year. Could be into next year, and then it could be even longer. But at that point that's kind of the timeframe, I would expect. Once it is resolved, any difference in the resolution would come back through income.
Carl Reichardt - Wachovia
Okay.
Cathy Smith
So therefore it go back to equity.
Carl Reichardt - Wachovia
Okay. Perfect. All right. And then just on the finished inventory count, the move down in it, can you tell me, you may or may not have this, what the additions to that were versus the subtractions? In other words, did you sell 800 finished and then add 400 through the pipe? Or was it all in that reduction?
Cathy Smith
Just a second. Carl, we're going to see if we can get you that detail. Let us get back to you in a minute.
Carl Reichardt - Wachovia
Fine. Okay. Thanks a lot, guys. Appreciate it.
Tim Eller
Okay. Carl.
Operator
Your next question comes from Michael Rehaut with J.P. Morgan.
Michael Rehaut - J.P. Morgan
Hi. Thanks.
Cathy Smith
Good morning, Michael.
Michael Rehaut - J.P. Morgan
Good morning, everyone.
Tim Eller
Hi, Michael.
Michael Rehaut - J.P. Morgan
The first question, I was hoping -- you discussed June being a little bit better. I just want to circle back to that and certainly one month doesn't make a trend. But I was hoping you could give a little bit more in terms of quantification, either through orders or traffic or CAN rates or you know, and just how much better June was. And what, in your opinion, might have driven that. And then I have a second question.
Cathy Smith
Yes. Let me provide a little color first and Tim may want to give a bigger picture. Just to kind of understand, traffic was about flat kind of consistent through the three months. So that one wasn't actually any better or worse in the month of June.
CAN rates, dropped throughout the quarter, and so they -- June was the low point, the average for the quarter was 31. But June was a little lower than that. So CANs had continued to come down. Discounts, you know, pretty much flat through the quarter, through the three months.
Michael Rehaut - J.P. Morgan
Excuse me.
Matt Moyer
Chris Brown has a question.
Cathy Smith
Okay. I'm sorry. Not sure what that was. So you can see that there was, you know, nothing in particular stood out as being why June was any better than the other months. But just it was pretty much the two that we saw were the consistency and sales pace in the neighborhoods and then the cancellation rates coming down.
Tim Eller
Michael, I'll just offer it still remains choppy out there. Sales are choppy. And we focus on really selling our inventory as it ages. And so we had a push to do that in June and perhaps that's what it was. But I guess the best way to characterize it is the market, the sales remain choppy. The market remains difficult.
Operator
Your next question comes from Rob Stevenson with Morgan Stanley.
Rob Stevenson - Morgan Stanley
Good morning, guys. Are you seeing any signs that of the land sellers capitulating and more willing to reprice or extend the terms of your options today than they were a couple months ago?
Tim Eller
Yes. We are. In fact, the options that we have outstanding were very, very much kind of in the money, because we took a very aggressive look at options last fiscal year. And we're actively renegotiating those options today. So both in terms of terms and in terms of price. So we're seeing a lot more flexibility on terms, some flexibility on price.
Rob Stevenson - Morgan Stanley
Okay. And then as a follow-up, Cathy, is there anything, you know, surety bond or JV related that's going to require a meaningful amount of cash expenditures over the next six months that isn't immediately evident looking at the financials today.
Cathy Smith
No. Nothing. The answer is no.
Rob Stevenson - Morgan Stanley
Okay. Thanks, guys.
Tim Eller
Thank you.
Operator
Your next question comes from Greg Gieber with A.G. Edwards.
Greg Gieber - A.G. Edwards
Morning.
Tim Eller
Good morning.
Cathy Smith
Good morning.
Greg Gieber - A.G. Edwards
Just as a point of clarification, Cathy. That's 750 you mention in cash flow. Was that for the full year or what you expect to have just in the second half?
Cathy Smith
That's cash flow from operations for the full year.
Greg Gieber - A.G. Edwards
Full year? Okay.
Cathy Smith
So as you know, we're down about $400 million in operations this quarter. So it will be the latter half of the year will be more a little stronger than that.
Greg Gieber - A.G. Edwards
Yeah. Obviously. I just want to make sure it was for the year. Question is really, I have is for Tim. Could you just tell us what markets you have pulled out of? Or have decided to pull out of because they lack strategic importance to you, longer term? And give us an approximate estimate or actual number, if you have it of the number of closings you did in 2005? You know sort of the peak year in those towns -- those cities?
Tim Eller
Well, really, we've only announced two markets, Greg, which is Columbus Ohio and the Triad area of North Carolina. And we continue to evaluate our other options. And we may continue to participate in some markets but at a lower level than we have in the past. And so in those markets less than 500 closings.
Greg Gieber - A.G. Edwards
Do you worry that you don't have enough volume, if you reduce your presence in a market to get economies of scale at the local level?
Tim Eller
No. We don't. In fact that's what this is all about. This is all about positioning for the future so we can gain share in those markets that will provide the best returns and the best benefit of scale.
Operator
Your next question comes from Alex Barron with Agency Trading Group.
Alex Barron - Agency Trading Group
Yes. Thank you. Wanted to go circle back to the impairments, I know you mentioned the top three areas. But can you give us kind of a dollar breakdown, or percentage breakdown by area of your impairments this quarter?
Cathy Smith
Yeah, you know, you'll get the segment detail by region in the Q. And that's really the best way to get it at this point other than I gave you the top three. And the Q will be filed fairly shortly.
Alex Barron - Agency Trading Group
Okay, I got it. And just, I guess, associated with that, I had here in my notes that you guys had previously impaired something like 87 communities, so I just want to reconcile that with your 100 counts, since I guess it's a net 25 addition.
Cathy Smith
Yeah.
Alex Barron - Agency Trading Group
Was that just a round number or...?
Cathy Smith
Yeah, I think the actual number is 83 previously impaired and then 29, but 24 were new or 25 new. So, and I just, I rounded.
Operator
Your next question comes from Buck Horn with Raymond James.
Buck Horn - Raymond James
Good afternoon, just curious about the inventory purchases again in the quarter. And was wondering for those inventory purchases. How much of that was voluntary strategic versus maybe option counter parties putting back to you? Forcing you to exercise the options?
Cathy Smith
In that quarter we had inventory like I said a couple $100 million. And of that, it was a little bit in the markets where we're short or growth markets, they are still performing very well. And that would be probably about a third of that. And then the remainder would have been JV commitments that we have that still make sense.
Buck Horn - Raymond James
Okay, great. And one quick one, did you have to make any other capital contributions to the JVs in the period and kind of how much?
Cathy Smith
We had no margin calls. We will make an equity contribution to a JV in the $25 million to $27 million range.
Operator
Your next question comes from Ethan Arback with Marathon Asset Management.
Ethan Arback - Marathon Asset Management
Hi, I was wondering if you could quantify in your expectation for $750 million in cash this year. What portion of that is from net income? And what portion is from changes in inventory?
Cathy Smith
We're not providing guidance this year at this point, given the uncertainty in the market. The reason why we have confidence in that cash generation amount is because of the amount of our balance sheet, and that we are you know continuing to sell homes so.
Tim Eller
That would imply that we would generate more, because we were cash flow negative this quarter. It would generate between now, and in the end of the year we will generate in excess of $1 billion between now and the end of the year.
Ethan Arback - Marathon Asset Management
Right. I mean, what are the key drivers are you using to come up with that? Are you going on a community-by-community basis and trying to figure out home homes you think you're going to sell? Or is it more of a big picture, you think, you're going to try and decrease the number of finished homes in inventory by a certain amount? I mean I'm trying to understand how you are arriving at that number?
Cathy Smith
Yeah, it's based on our understanding of our forecast, our internal forecasts. So home we're going to sell so inventory reductions. And we know where we are going to continue to want to buy land that we are light, and the markets that make sense. And so we factor that in as well.
Operator
Your next question comes from Dan Oppenheim with Banc of America Securities.
Dan Oppenheim - Banc of America Securities
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?
Tim Eller
Well, it's really not change it from even October of '05. I mean, 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're 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 to generate cash, so we have balance sheet flexibility for now and in the future, and aggressively attack all of our costs.
Dan Oppenheim - Banc of America Securities
Okay. Thanks very much.
Operator
Your next question comes from Kenneth Zener with Merrill Lynch.
Kenneth Zener - Merrill Lynch
Morning again. You guys recently amended your covenants to include debt to cap measures in your revolver.
Tim Eller
Yes.
Kenneth Zener - Merrill Lynch
I was wondering, if you could talk about the willingness of banks to work with smaller, private builders, and how you think that will play out during the cycle. Since it looks like there is a lot more capital available to both large and small builders this time.
Cathy Smith
Yeah, I can't comment on how the willingness of the banks to work with others. We have a very supportive bank group. And as you know it's in the filing of our 8-K, we did just amend our credit agreement.
Tim Eller
It will be interesting, Ken, to see how this really plays out in terms of the private sector, and the development sector. So far there's been a lot of patience. We don't see much distress, and although we're seeing now, as I mentioned earlier, a lot more flexibility in terms of land sellers in terms, and in some cases, prices.
Kenneth Zener - Merrill Lynch
Do you think the availability of capital is going to kind of disrupt things, because Terra Homes, for example, it received funds from a hedge fund, do you think the interest in capital is going to really kind of amplify the supply issues?
Tim Eller
I don't know. I'm not sure quite how it's going to play out. I think it's good for the industry that there is a fair amount of patient capital in the industry right now, so. But it will play out.
Operator
Your next question comes from Gary Freeman with Gem Realty Capital.
Gary Freeman - Gem Realty Capital
Thank you. Cathy, I apologize, if you gave color on this earlier in the call. But I think you mentioned that your quarter got better or strengthened toward the end of June. I assume you meant that from an absorption standpoint?
Cathy Smith
Yeah, in a couple of places. Cancellation rates continue to improve throughout the quarter, and in two quarters sequentially, as well as absorption rates or the pace and predictability in the neighborhoods.
Gary Freeman - Gem Realty Capital
Were you cutting priests more aggressively toward the end of the quarter to improve that absorption?
Cathy Smith
Not anywhere in particular, no. Now, discounts were up a little bit, 50 basis points, 8.8% in the quarter.
Operator
Your next question comes from Jim Wilson, JMT Securities.
Jim Wilson - JMT Securities
Thanks, good morning. I was wondering, maybe Tim, could you, in your markets that you think that had been weaker and have stabilized, it sounded like particularly Phoenix and DC. Could you give a little color on how much you think they've dropped from the peak and kind of a what you think it's taken to reach stabilization or relative stabilization of markets?
Tim Eller
In terms of what, Jim?
Jim Wilson - JMT Securities
Price through discounts, or price cuts from the peak things of that nature.
Tim Eller
That varies significantly by neighborhood and product position. So, but it's substantial. I mean, I'll just say it's a substantial difference, and a lot of that is just affordability. It's the market's need to adjust to become more in balance with our buyer's capability to purchase.
And to the realities of the mortgage markets, but having said that, both our Phoenix and D.C. markets cancellation rates are back to normal. We're seeing predictable sales paces. And so those are the first steps to this recovery, basically.
Jim Wilson - JMT Securities
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?
Tim Eller
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.
Operator
Your next question comes from Michael Rehaut with J.P. Morgan.
Michael Rehaut - J.P. Morgan
Hi, thanks. I think I was cut-off there from my second question. So maybe...
Tim Eller
Sorry.
Michael Rehaut - J.P. Morgan
Not your fault. But, maybe I can get a couple in here. Just going back to my line of questioning before about the trends during the corner, and again month-to-month understand a lot of variability and still inconsistency. But how have you seen what you saw in June continuing to July, if you are able to offer any insight there?
Tim Eller
We're not. I mean, July isn't even finished yet. So, but again, the best characterization I can give of our sales environment is choppy.
Michael Rehaut - J.P. Morgan
Okay. And you know, in terms of pricing, Cathy, you mentioned that incentives were up 50 basis points, but I assume that that is more, that is stat is more on closed homes, not the orders that you're taking? Is that correct?
Cathy Smith
Yes.
Michael Rehaut - J.P. Morgan
Okay. So on the pricing trends during the quarter, as it relates more to orders, you know, I was wondering if you could comment on that, and you know, even by market, where you've been you know more aggressive and how you see, pricing, where the worst markets where the best markets. And where have you seen better success with your own pricing positioning?
Tim Eller
It's a very dynamic environment, Michael. I mean, it changes all the time. So I think, you know, the characterization I gave of Phoenix and D.C. is maybe one of the best. Which is, these markets needs to reach a level of stabilization and predictability and we are seeing more of that in more places. But we are not seeing it across the board.
We are not seeing strength, really predictable strength, anywhere. It still remains choppy. And I think it's really no different than our comments even last quarter. Florida remains highly impacted. Southern California remains highly impacted. Texas is slowing because of the mortgage liquidity. And we are seeing signs of stabilization in a few places.
Operator
Your next question comes from Nishu Sood with Deutsche Bank.
Nishu Sood - Deutsche Bank
Thanks. I also had a follow-up question on the can rates. A lot of your peers, public and private, seeing a tick up in the can rates, due to mortgage disqualifications. So I mentioned that would have probably had an effect on your can rates as well.
You already mentioned pricing wasn't the offset that would have kept your can rates more stable. I was wondering if you could help us understand what is helping you keep your can rates down in the face of the mortgage situation?
Tim Eller
Well I don't know -- I don't know that there is anything. It may just be mix and where we are. The cancellation rates today are much more around the mortgage issues, than they are around buyers reselling their houses.
That is still an issue. Mortgage issues over the past three, four months have l a higher impact on the cancellations. But I can't explain why ours is different than somebody else's.
Matt Moyer
And Nishu, this is Matt, keep in mind, at 31%, there is still a good 5, 6, 7 percentage points above kind of historical levels. They've come down quite nicely for us and as a presented backlog they've come down. But they still remain above any historical levels.
Nishu Sood - Deutsche Bank
Right. One other quick question. Cathy, you mentioned ex-selling expenses you have been pretty successful in holding your overhead costs down, just wondering if you could help us understand, maybe quantify, what the trends have been in your selling year over year?
Cathy Smith
Yeah, I don't have that off the top of my head, Nishu. We can look it up. Maybe we can pull it here real quick.
Tim Eller
They are up a bit.
Cathy Smith
Yeah, as you would expect in a difficult market, but I don't have a trend for you. We'll have to get back to you on that one.
Operator
Your next question comes from Dan Oppenheim with Banc of America Securities.
Dan Oppenheim - Banc of America Securities
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?
Cathy Smith
Yeah. 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.
Tim Eller
FHA, particularly.
Dan Oppenheim - Banc of America Securities
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 shifting to that is just the whatever percent of the people are still using it and the sub prime people aren't getting the mortgages?
Tim Eller
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, just kind of more of those Southern California and Texas markets that be typically hit.
Operator
Your next question comes from Greg Gieber with A.G. Edwards.
Greg Gieber - A.G. Edwards
Yeah Tim, you've mentioned there markets we are seeing stabilization. I assume that is on orders. Could you give us an idea at what operating margin these markets are stabilizing at? Compared to historical norms for the markets?
Tim Eller
You know, in some cases, we are profitable and fairly profitable. Even at current levels and in some cases we are much more challenged. It really is very market specific. And again...
Cathy Smith
Neighborhood specific.
Tim Eller
And neighborhood specific.
Greg Gieber - A.G. Edwards
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 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?
Tim Eller
That is a good question, Greg. And we've done some work on that. And 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's the exact process we are going through in southern California. Southern California we've had a Fox and Jacobs brand for several years and that's 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.
Operator
Your final question comes from Joel Locker with FBN.
Joel Locker - FBN
Hi, guys. Kind of just wanted to get my hands around inventory a little better. Just you know, with the 49% drop in lock counts I mean, that's great in the last five quarters. But, I look at it more on a dollar-wise versus backlog. If you look at backlog over the last four years it is down 8% versus 136% increase in inventory. And you know, so that is about 156% differential I think.
Was wondering if anytime in the last four years, if you switched your operating schedule or you know, just your whole business plan because that just seems like it's pretty outside.
Tim Eller
Well, we look at it slightly different. We look at it as a percentage of work in process, so our unsold inventory as a percentage of work in process. We'd like to keep at a 15% to 20% range.
We are higher than that now, primarily because of the cancellation issues that we have had. But our target continues to be 15% to 20% of work in process. That really hasn't changed.
Joel Locker - FBN
Right though. And just, when you impair communities, do you look at future communities that are not open yet?
Cathy Smith
Yeah. We sure do. We look at everybody neighborhood both active and inactive. So, we have 670 roughly active neighborhoods and we look at 1100 neighborhoods.
Joel Locker - FBN
1100 Total? And so, that's you know for the most part those impairments you look at them every quarter? Every single community?
Cathy Smith
Absolutely.
Joel Locker - FBN
All right, thanks a lot.
Tim Eller
Thank you.
Operator
I'll turn the call back to management for any closing remarks.
Tim Eller
Thank you. And thanks everyone for joining us today. We look forward to sharing our second quarter results and continued improvements in our operations during our next call in October.
Operator
This concludes Centex's fiscal year 2008 first quarter earnings conference call. Thank you for your participation.
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