Weak consumer confidence and economic uncertainty contributed to softer market conditions for public home builders during the fiscal third quarter. While the desire for homeownership remains strong, prospective buyers are staying on the sideline due to affordability concerns, waiting for conditions to improve.
Builders have successfully been able to attract hesitant buyers with financing incentives and price concessions. In the third quarter, many builders faced a similar phenomena: lower interest rates have been met with a more muted response from buyers than other periods of recent rate declines. As a result, many builders were not able to pull back on incentives even in a cooler rate environment.
Many buyers have not only become accustomed to the price concessions, rate buydowns, and design upgrade incentives offered by builders but are expecting them while they remain uncertain about the overall economy. Given the reality of the current market, many builders anticipate incentives remaining a key element for the sector moving into 2026.
While the cost of incentives provides a downward pressure on margin, companies have been able to better manage costs related to labor and materials throughout 2026. Additionally, many builders in the period noted continued improvement on cycle times, another tailwind helping offset the cost of financing incentives. Additionally, with a more muted sales environment, builders continue to right-size their starts cadence to better align with current demand conditions.
What They’re Saying: On Incentives, Market Conditions, and 2026 Outlook
“Our results and position reflect our experienced teams, industry-leading market share, broad geographic footprint, and focus on delivering quality homes at affordable price points. We recognize the current volatility and uncertainty in the economy, and we will continue to adjust to market conditions in a disciplined manager to enhance the long-term value of our company.” — Paul Romanowski, president and CEO, D.R. Horton
“Our third quarter results reflect the continued softening of market conditions and affordability. Sales volume was difficult to maintain and required additional incentives in order to achieve our expected pace and to avoid building excess inventory… We are now situated with a lower cost structure, efficient product offerings, and strong market positions to accommodate pent-up demand as rates moderate and confidence ultimately returns. We believe that we’ve gotten ahead of the current market realities, and we have built what we believe is a stronger, long-term margin-driving platform.” — Stuart Miller, executive chairman and co-CEO, Lennar
“Consumers remain engaged in the home buying process, but they are proceeding with caution given concerns, which I think range from economic weakness and job stability to stretched affordability… I think it’s fair to say that home buying demand in 2025 has been more challenging than the industry was anticipating. And while it has been more challenging, I think PulteGroup’s year-to-date results continue to demonstrate the importance of our diversified and balanced approach to the business.” — Ryan Marshall, president and CEO, PulteGroup
“Our spec strategy, combined with a 60-day closing-ready guarantee, move-in ready home and focus on external Realtor engagement enabled us to both compete for customers in a different way by providing them certainty and secure incremental sales orders and closings. Our 100% spec strategy and the significant improvements we have made in our cycle times over the past six quarters gives us the flexibility to ramp up or slow down our starts pace based on real-time local demand.” — Phillippe Lord, executive vice president and CEO, Meritage Homes
“Our focus is on offering the most compelling value at a transparent price while limiting the use of incentives. When we discuss with buyers the alternative of the lower sales price we offer versus a much higher price that can be offset by incentives, buyers recognize that they have a better opportunity for building wealth and equity over time with our home… Our buyers can then meaningfully influence their final sales price in selecting their lot, floor plan, and exterior elevation as well as personalized design studio selections, aligning their monthly payment with their budget. Increasing our built-to-order mix will help us establish a larger backlog, which provides greater visibility into future closing projections.” — Jeffrey Mezger, president and CEO, KB Home
“With approximately 70% of our portfolio serving move-up and resort lifestyle homebuyers, our financial performance is supported by the strength of our broad consumer set… In move-up and resort lifestyle communities, we are inclined to be more patient to protect values given our distinct locations and product offerings in hard-to-replace communities. We are able to execute this balanced approach in part because we have a well-structured land bank that provides a capital-efficient lot supply. While the near-term outlook calls for a more patient trajectory, we strongly believe that we have the platform to jump-start outsized growth as market dynamics stabilize.” — Sheryl Palmer, chairman and CEO, Taylor Morrison
“While home buyer demand has been more muted this year due to weaker consumer confidence, we continue to believe there is pent-up demand for affordable new homes supported by solid demographic trends. Buyers remain hesitant and cautious given the current level of uncertainty but still have the desire to own a new home. As a result, we expect that any interest rate relief and improvement in consumer confidence will start to unlock buyer demand… While the operational benefits of our strategy are already apparent, some of the financial benefits have been clouded by the higher incentives we’ve been offering this year. Once the market begins to normalize, we are confident the value of these investments will be fully realized.” — Dale Francescon, executive chairman, Century Communities
“As we see market improvement, we have the ability to quickly ramp up our spec production… From a pricing perspective, we modestly increased incentives in the third quarter. The average incentive in new contracts was approximately 8%, up from 7% in the second quarter. Our cancellation rate was 3.2% compared to 2.4% in last year’s third quarter. Our cancellation rate remains the lowest in the industry, continuing to reflect the financial strength of our buyers and demonstrating that they remain comfortable and confident in completing their home purchases.” — Douglas Yearley, chairman and CEO, Toll Brothers
“In our view, housing conditions are just OK. Probably about a C+. We continue to incentivize sales and drive traffic primarily with mortgage rate buydowns. The cost of such buydowns is the primary reason for the decline in our gross margins. We will continue to use such rate buydowns where necessary on a subdivision-by-subdivision basis in order to drive traffic and generate sales… We remain quite optimistic about our business and continue to believe that our industry will benefit from the undersupply of homes and growing household formations throughout our markets.” — Robert Schottenstein, chairman, CEO, and president, M/I Homes
“While our revenue was lower year over year, we were able to achieve a modest increase in home closings, along with a meaningful rise in net sales, both of which are third quarter company records. We continue to see a complex and challenging housing market, though we are encouraged by the recent easing of mortgage rates… While we see continued near-term challenges affecting the housing market, we remain confident that we have built the foundation to further scale our business and continue to deliver superior, long-term returns for our shareholders.” — Patrick Zalupski, CEO, Dream Finders Homes
“In the short term, we are prioritizing inventory management, disciplined cost control, and the sale of move-in ready homes while steadily increasing the mix of to-be-built homes over time. For long-term success, we continue to invest in both our core and expansion markets, with a goal of scaling our operations and consistently growing community count. We are encouraged by the progress of our new market expansions in Utah, Florida, and the coastal Carolinas. Development activity is well underway, and strong local leadership teams are in place. While initial contributions will be modest, we expect these divisions to generate meaningful growth beginning in 2027 and beyond as they gain scale.” — Doug Bauer, CEO, Tri Pointe Homes
“During this year’s third quarter, incentives were 11.6% of the average sales price. The majority of this cost is related to buying down mortgage rates. This is up 360 basis points from a year ago. It’s up 110 basis points from the second quarter of 2025, and it’s up 860 basis points from fiscal 2022, which was prior to the mortgage rate spike impacting our deliveries. Other than the extraordinary cost to buy down mortgage rates to make our homes affordable today, our gross margin would be very healthy.” — Ara Hovnanian, chairman, president, and CEO, Hovnanian Enterprises
“We take a thoughtful approach to financing incentives. With higher mortgage rates driving affordability challenges, buydowns and other financing tools are among the most effective ways to help buyers reach the closing table, and we continue to lean into offering the most competitive buydowns possible. However, going to extremes and buydowns just to move a few incremental homes is something we’re working hard to avoid. We continue to price all of our homes competitively, and we use price adjustments selectively, focusing on aging inventory while maintaining or raising prices in high-performing communities.” — Eric Lipar, chairman and CEO, LGI Homes
“Our entire industry seems to use some version of the same affordability playbook. Higher purchase incentives, smaller square footage, and fewer features all help buyers attain homeownership but they don’t excite home buyers. And they don’t address all the costs that are straining affordability. At Beazer, we are focused on the total cost of homeownership by offering lower mortgage rates, through competition and elimination of middlemen, lower utility bills from dramatically more efficient homes, and lower insurance premiums through competition and advanced building practices.” — Allan Merrill, chairman and CEO, Beazer Homes
“Our performance remained resilient despite eroding consumer confidence and an increasing supply of housing inventory. Our builders adapted quickly to a volatile housing market as we continue to balance price and pace to maximize returns in each of our communities… While the macroeconomic landscape presents headwinds for the entire industry, we believe the core strengths that have driven Green Brick’s success over the past decade will enable us to continue to navigate any challenges with confidence and flexibility.” — Jim Brickman, CEO, Green Brick Partners
“Our operating philosophy is straightforward, but hard to replicate, thanks to our operating discipline and culture. We focus on providing our customers with quality homes at an affordable price while maintaining tight cost controls and leading cycle times. We also avoid much of the risk associated with homebuilding by controlling most of our lots and land through option agreements… Financing incentives remain an important sales tool in getting buyers to move forward and purchase. And we expect this to continue into the fourth quarter.” — Greg Bennett, vice chairman and CEO, Smith Douglas Homes
“We experienced uneven demand in the quarter. We saw encouraging trends as the quarter progressed, culminating with September being our best order month year to date. Traffic also meaningfully improved, averaging between 350 and 400 weekly visits during the quarter compared to around 200 per week in the first half of the year. The increase in buyer engagement is an encouraging leading indicator, especially as we continue to expand our community portfolio.” — Jack Micenko, CEO and president, United Homes Group
