Inventory

Major components of inventory were as follows ($000’s omitted):



	June 30, 2016		December 31, 2015
Homes under construction	$	2,058,479	$	1,408,260
Land under development	3,704,857		3,259,066
Raw land	866,128		782,732
	$	6,629,464	$	5,450,058

We capitalize interest cost into inventory during the active development and construction of our communities. In all periods presented, we capitalized all Homebuilding interest costs into inventory because the level of our active inventory exceeded our debt levels. Information related to interest capitalized into inventory is as follows ($000’s omitted):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Interest in inventory, beginning of period	$	158,653		$	166,887		$	149,498		$	167,638
Interest capitalized	38,231			31,296			73,515			62,099
Interest expensed	(29,396		)	(33,799		)	(55,525		)	(65,353		)
Interest in inventory, end of period	$	167,488		$	164,384		$	167,488		$	164,384

Land option agreements

We enter into land option agreements in order to procure land for the construction of homes in the future. Pursuant to these land option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Such contracts enable us to defer acquiring portions of properties owned by third parties or unconsolidated entities until we have determined whether and when to exercise our option, which reduces our financial risks associated with long-term land holdings. Option deposits and pre-acquisition costs (such as environmental testing, surveys, engineering, and entitlement costs) are capitalized if the costs are directly identifiable with the land under option, the costs would be capitalized if we owned the land, and acquisition of the property is probable. Such costs are reflected in other assets and are reclassified to inventory upon taking title to the land. We write off deposits and pre-acquisition costs when it becomes probable that we will not go forward with the project or recover the capitalized costs. Such decisions take into consideration changes in local market conditions, the timing of required land purchases, the availability and best use of necessary incremental capital, and other factors. We record any such write-offs of deposits and pre-acquisition costs within other expense, net.

If an entity holding the land under option is a variable interest entity ("VIE"), our deposit represents a variable interest in that entity. No VIEs required consolidation at either June 30, 2016 or December 31, 2015 because we determined that we were not the VIE's primary beneficiary. Our maximum exposure to loss related to these VIEs is generally limited to our deposits and pre-acquisition costs under the land option agreements. The following provides a summary of our interests in land option agreements as of June 30, 2016 and December 31, 2015 ($000’s omitted):



	June 30, 2016				December 31, 2015
	Deposits and Pre-acquisition Costs		Remaining Purchase Price		Deposits and Pre-acquisition Costs		Remaining Purchase Price
Land options with VIEs	$	80,063	$	928,327	$	77,641	$	1,064,506
Other land options	98,744		1,165,813		84,478		981,687
	$	178,807	$	2,094,140	$	162,119	$	2,046,193