Following a muted spring selling season, buyer hesitancy and economic uncertainty persisted into the fiscal second quarter for public home builders. Elevated interest rates and affordability concerns continued to weigh on demand. While the desire for homeownership remains strong, many prospective buyers are staying on the sidelines, waiting for conditions to improve.
As a result, incentives and price concessions became more common tools among public builders to achieve sales in the choppy and challenging market. D.R. Horton, the nation’s largest home builder, set the tone at the start of the earnings period, noting that sales incentives are expected to remain elevated in the coming months. Throughout the earnings period, other public builder executives shared similar messages with investors, highlighting the success—and cost—of incentives in the current landscape.Â
In contrast to prior quarters, when tariff uncertainty was a more prominent topic, it received less attention in the most recent earnings period. Instead, public builders emphasized improvements in cycle times and supply-side cost efficiencies as they work to algin housing starts with evolving market conditions.
What They’re Saying: On Market Conditions, Incentives, and Outlook
“Despite the volatility and uncertainty of the current economic environment, we expect our sales incentives to remain elevated and increase further during the fourth quarter. The extent to which will depend on the strength of demand, changes in mortgage interest rates, and other market conditions. With 54% of our third quarter closings also sold in the same quarter, our sales incentive levels and gross margin are generally representative of current market conditions. We will continue to tailor our product offerings, utilize sales incentives, and adjust the number of homes and inventory based on demand in each of our markets.” — Paul Romanowski, president and CEO, D.R. Horton
“The housing market right now is driven by supply and demand that can’t be properly aligned. This is a difficult cycle as low supply fuels high prices and high prices lock out many of our buyers… The environment is about recognizing that short supply is keeping prices higher and that only lower prices, enabled by lower cost structures, will define affordability. This trend has started with reducing margins and using incentives to enable affordability, but looking ahead, it is much more about transitioning to lower cost structures.” — Stuart Miller, executive chairman and co-CEO, Lennar
“Over the past few quarters, our industry has routinely referenced demand conditions being volatile, and that remains the most accurate description of buyer activity in the first and second quarters. Within a market demonstrating a typical seasonal pattern from month to month, we do see days of strong demand followed by days displaying a step down in sign-up activity. Feedback from would-be home buyers indicates a variety of concerns ranging from affordability and the inability to sell an existing home to a slowing economy and the fear of potentially losing their job.” — Ryan Marshall, president and CEO, PulteGroup
“We also changed the pace of our starts based on our cycle times to ensure we have an optimal amount of ready inventory. As part of our agile business model, we exercise a disciplined yet flexible approach around our land strategy that helps us optimize our land position on a market-by-market basis. We routinely review all of our land under control and determine if it still aligns with the changing market conditions. As a result of this analysis, we regularly terminate land deals that no longer fit our criteria.” — Phillippe Lord, executive vice president and CEO, Meritage Homes
“As we continue to sell through our inventory, our goal is to steer our business back to this historical range of built-to-order homes over time. It is our core competency and a key differentiator from a competitive standpoint setting us apart from the other larger production home builders. More importantly, from a consumer standpoint, it offers buyers choice with features we know they value based on our survey data.” — Jeffrey Mezger, president and CEO, KB Home
“In this environment, our overall bias between pace and price leans more heavily toward price and ultimately, margin and returns, given the value of our attractive land positions, desirable communities and discerning customers, especially in our amenity-rich move-up and resort lifestyle neighborhoods. Affordability continues to be top of mind for our first-time buyers, while quality of community and choice remain critical for our other consumer segments. We are by no means immune from the headwinds facing our industry. However, we believe our strategy of serving well qualified home buyers across the consumer spectrum with a well-balanced portfolio of to-be-built and spec homes provides important benefits.” — Sheryl Palmer, chairman and CEO, Taylor Morrison
“While the spring selling season was clearly muted compared to historical trends, we continue to believe that there is underlying demand for affordable new homes supported by solid demographic trends and we were encouraged by several trends and we were encouraged by several trends that we saw during the second quarter… We are not focused on growth for the sake of growth alone and we look to balance pace and price at the community level to optimize our returns.” — Dale Francescon, executive chairman, Century Communities
“Given the softer demand environment, we modestly increased incentives in the quarter. Overall, incentives were approximately 7% of the average sales price, up from our recent average of 5% to 6%. We have been reducing our spec starts to match local market conditions. Our spec strategy is calibrated to effectively balance the need to add quick moving homes available to meet buyer demand while protecting margins.” — Douglas Yearley, chairman and CEO, Toll Brothers
“Throughout this year, we have strategically and effectively used mortgage rate buydowns to drive traffic and incent sales. Though such buydowns have impacted profitability and margins, they have been most successful as we strive to balance price and pace across our 234 communities. We have repeatedly said that long-term fundamentals of our industry are sound and that housing will benefit greatly from the current undersupply of homes and growing household formations. There’s little doubt that many potential buyers are sitting on the sidelines, waiting for a better rate environment and an improvement in customer sentiment.” — Robert Schottenstein, chairman, CEO, and president, M/I Homes
“The industry continues to be faced with challenges from elevated interest rates straining housing affordability and weakening consumer confidence. While this is perhaps the most challenging environment in the past three years—since rates became elevated in mid-2022—I am proud of our team’s execution and focus on our long term vision and I am confident in our ability to drive meaningful growth organically and through acquisitions.” — Patrick Zalupski, chairman and CEO, Dream Finders Homes
“Our new market expansions in Utah, Florida, and the coastal Carolinas remain on track and are expected to contribute to meaningful top and bottom line growth over time while broadening our geographic footprint. We expect notable inflection in the performance from our new divisions beginning in 2027 as volumes increased and operating leverage improves. While near-term conditions remain challenging, we are executing through a differentiated premium product offering, target incentives, and continued focus on cost discipline and cycle time improvements.” — Doug Bauer, CEO, Tri Pointe Homes
“During this year’s second quarter, incentives were 10.5% of the average sales price. This is up 240 basis points from a year ago, 80 basis points from the first quarter of 2025, and 750 basis points higher than fiscal 2022, which was prior to the mortgage rate spike impacting deliveries. Other than the extraordinary cost to buy down mortgages to make our homes affordable, our gross margins would have been very healthy.” — Ara Hovnanian, chairman, president, and CEO, Hovnanian Enterprises
“While the desire for homeownership has proven resilient, elevated mortgage rates contributed to the affordability pressures weighing on entry-level buyers. Additionally, heightened economic uncertainty has created a softer sales environment, in which buyers are still exploring the idea of homeownership, but are taking longer to make decisions and, in some cases, choosing to delay their purchases.” — Eric Lipar, chairman and CEO, LGI Homes
“We acknowledge that builders who have reduced home sizes, feature levels, or performance standards to be able to offer lower home prices have exceeded our sales pace this year. I’d like to discuss our rationale for our commitment to a differentiated product and customer experience strategy. Today, we are both the No. 1 energy efficient home builder in the country and the highest rated national home builder for customer service according to TrustBuilder. Attaining these positions has taken time and commitment, but we believe they will lead to substantial returns to shareholders over time.” — Allan Merrill, chairman and CEO, Beazer Homes
“Maintaining our sales volume required price concessions and other incentives as we address the affordability challenges raised in this high interest rate environment. As expected, these dynamics put downward pressure on our home building gross margins. Our continued emphasis on efficient cost controls, innovative home offerings, and targeted expansion in high-volume markets supports our goal of sustaining industry-leading profitability metrics and creating long-term shareholder value.” — Jim Brickman, CEO, Green Brick Partners
“We experienced inconsistent demand trends during the quarter with stretches of solid order activity followed by periods of softness. While we believe there’s a strong desire and need for new homes in our markets, affordability constraints, declining consumer confidence, and lack of urgency from buyers continue to be a headwind for our industry. As a result, we remain intensely focused on operating elements that are within our control, which include making our homes as affordable as possible while giving our buyers the choice and customization they desire.” — Greg Bennett, vice chairman and CEO, Smith Douglas Homes
“Overall, I am pleased with our company’s performance this quarter as we continue to navigate changing market conditions. Demand trends within the quarter were inconsistent as home buyers continue to weigh their desire for homeownership against the reality of high mortgage rates and concerns over affordability. On a positive note, we saw fairly resilient traffic numbers through the quarter which we feel is a sign that buyers in our markets remain engaged and interested in buying a home provided it fits within their budget. We continue to offer mortgage rate buydowns and other financial incentives as a way to address affordability concerns with our buyers.” — Jack Micenko, CEO and president, United Homes Group
