MW Home builders are struggling, and it's not just because new houses aren't affordable

By Tomi Kilgore

Lower prices and mortgage rates, and higher incentives haven't boosted sales, as worries about the economy and the job market keep buyers on the fence

D.R. Horton's results show that the market for newly built homes continues to slow, as affordability issues, as well as worries about the economy and the job market, are keeping buyers on the fence.

Shares of D.R. Horton Inc. took a hit Tuesday, as the home builder confirmed that the market for new houses was still weak, and it wasn't just because prices and mortgage rates were too high - people are afraid to shell out so much for a new house when they're worried about the economy and their jobs.

Texas-based D.R. Horton $(DHI)$, the largest home builder by sales volume, said the average closing price of net sales orders during the fiscal fourth quarter to Sept. 30 was down 3% from a year ago to $364,900, which was the lowest average price seen since the fourth quarter of 2021. And 30-year fixed mortgage rates also fell during the quarter, to an average rate of 6.64% from 6.94% a year ago, according to FactSet data.

But even with lower prices and mortgage rates, the number of homes closed fell 1.2% to 23,368, which was below the average analyst estimate compiled by FactSet of 23,809 homes. And that weakness comes despite higher incentives to home buyers to boost sales, which pushed profits below what Wall Street was expecting.

Read: Home builders boost sales incentives to 5-year high as they struggle to sell newly build homes.

Chief Executive Paul Romanowski said affordability was certainly still an issue. But consumers were also concerned about the "volatility and uncertainty" in the economy, which may be leading to worries about the job market.

It certainly won't help matters to see large layoff announcements from high-profile companies like Amazon.com Inc. (AMZN) and United Parcel Service Inc. (UPS) on Tuesday, and many other companies in recent weeks.

Romanowski said on the post-earnings call with analysts, according to an AlphaSense transcript, that he expected to see a bigger bump in home sales as mortgage rates fell, but the lack of consumer confidence, fueled by economic uncertainty, was "keeping people on the fence."

He said "consistent sustainable job growth" is needed to drive growth in the housing market, but there are markets in which the company operates that the job market is flat.

The stock dropped 3.2% to close Tuesday at $153.75. While the stock is still up 10% in 2025, it has shed 16.5% since closing at an 11-month high of $184.04 on Sept. 8. In comparison, the S&P 500 index SPX, which has advanced 17.25% this year, closed Tuesday at a record high.

Last week, rival builder PulteGroup Inc. $(PHM)$ reported third-quarter new-home orders that dropped 6% from a year ago - the sixth straight quarter of year-over-year declines, according to FactSet data. CEO Ryan Marshall said then that mortgage rates don't operate in a vacuum. In the current scenario, he said rates are falling because the economy and job market are slowing

"Based on feedback from our sales associates, consumers remain engaged in the home-buying process, but they are proceeding with caution given the concerns, which I think range from economic weakness and job stability to stretched affordability," Marshall said, according to the earnings-call transcript. "I think that is why buyer response to the decrease in interest rates was more muted than we experienced in other periods of rate declines."

Pulte's stock closed Tuesday up 0.4%, and is up 10.9% this year, but has declined 14.6% from its Sept. 8 peak.

The triple whammy of lower sales, lower prices and higher incentives has also weighed on home builders' profitability, and is expected to continue to hurt results in the coming months.

D.R. Horton reported net income that fell 9.1% from last year to $297.4 million, while earnings per share fell to $3.04 from $3.92 and missed the average analyst EPS estimate compiled by FactSet of $3.27.

Gross margin on home sales, a measure of profitability - a higher percentage is better - dropped to 20% from 23.6% last year, due in part to higher incentives. And the company indicated that incentive levels are currently expected to remain "elevated" in fiscal 2026.

Pulte said something similar about profitability last week, as gross margin for the latest quarter fell to 26.2% from 28.8% last year. For the current fourth quarter, gross margin is expected to decline further, to a range of 25.5% to 26%.

The lower margin outlook comes from factoring in current demand conditions, competitive markets and a goal of reducing excess inventory.

"You have heard me say before, that we can't be margin proud," Marshall said.

-Tomi Kilgore

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October 28, 2025 19:22 ET (23:22 GMT)

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