By Panos Mourdoukoutas

Homebuilder earnings reports released in recent days point to a challenging environment for the industry, as companies increasingly rely on incentives and mortgage rate buydowns to reduce elevated inventories during a sluggish spring selling season.

Executives’ commentary has underscored the pressures facing the sector. D.R. Horton’s April 21 conference call, following its earnings report for the fiscal second quarter, which ended on March 31, highlighted the broader trend.

Incentives on the Rise

The company began the quarter with 20,000 homes in inventory and ended with 36,900. As of March 31, 23,500 of those homes were unsold, including 8,400 completed, down by 2,000 from December 2025, Paul Romanowski, CEO of D.R. Horton, said during the call.

PulteGroup reported on April 23 that its total inventory declined by nearly 900 homes, while finished homes fell by almost 500 units, or 24 percent, in the first quarter to 1,515 units. This helped bring the company within its target range of 1–1.5 finished homes per community in which it operates.

The inventory reductions come as builders roll out various incentives, including rate buydowns—sales arrangements in which builders subsidize part of the mortgage interest rate to lower buyers’ monthly payments.

Romanowski said D.R. Horton is increasingly using incentives to sell homes because affordability challenges and cautious consumer sentiment continue to weigh on demand for new homes.

“We have increased sales incentives to drive traffic and incremental sales,” he said during the conference call.

“We expect our incentive levels to remain elevated and increase further, the extent to which will depend on market conditions and changes in mortgage interest rates.”

Tradeoffs

While such measures have helped move inventory, they have also weighed on profitability. D.R. Horton reported a gross profit margin on home sales revenue of 21.80 percent in the second quarter, down by 90 basis points from the prior quarter.

“We expect our incentive costs to increase further over the next few months, so our home sales gross margin will likely be lower in the third quarter compared to the second quarter,” Jessica Hansen, vice president of investor relations at D.R. Horton, said.

PulteGroup’s gross margin declined to 24.4 percent from 27.5 percent in the previous quarter, reflecting an increase in incentives of 290 basis points year over year and 100 basis points sequentially.

PulteGroup CEO Ryan Marshall said that the incentives the company used in the first quarter reached 10.9 percent of its gross sales price.

“Our ability to offer low fixed-rate mortgages and other incentives is certainly helping solve the affordability riddle for some,” Marshall said during the company’s conference call. “But this comes at a price.”

Homebuilding and mortgage banking company NVR, meanwhile, cited continued pricing pressure and higher lot costs as factors negatively affecting margins.

Headwinds

Industry surveys point to a combination of headwinds weighing on the housing market.

Housing affordability remains a central issue, with home prices rising faster than wages, and mortgage rates climbing over the past few years. Data from the Federal Reserve Bank of St. Louis show the average home sales price increased from $272,900 at the end of 2009 to $534,000 at the end of 2025, a 96 percent rise. Average annual wages rose from $40,711 in 2009 to $69,846 in 2024, a 72 percent increase.

Mortgage rates have also risen sharply since 2020, increasing from roughly 2.7 percent to above 6 percent currently, which has significantly raised monthly payments and discouraged first-time buyers from entering the market.

Data from the National Association of Realtors (NAR) indicate that first-time buyers accounted for just 21 percent of all homebuyers over the past year, a historical low. The median age of first-time buyers has also climbed to the early 40s, compared with the early 20s in the 1980s.

The NAR report also highlighted rising down payments. The median down payment reached 19 percent overall in 2025, including 10 percent for first-time buyers and 23 percent for repeat buyers—the highest levels since 1989 and 2003, respectively.

Elevated living costs have added further pressure on consumers. The University of Michigan’s Consumer Sentiment Index fell to 47.6 in early April, an 11 percent decline from the previous month. Consumers cited rising prices as a key constraint, particularly for purchases of durable goods and vehicles.

Broader Industry Dynamics

Patrizia Porrini, professor of Management at Long Island University, said D.R. Horton’s earnings results reflect broader industry dynamics.

“An 11 percent year-over-year jump in net sales orders and a 35 percent cut in unsold completed homes show real execution muscle—yet elevated sales incentives and tariff-driven input costs remain the unavoidable price of keeping buyers at the table in a 6 percent-plus mortgage rate environment,” she told The Epoch Times.

Maor Greenberg, co-founder and CEO of Spacial, an AI-powered construction tech company, said D.R. Horton’s results highlight pricing pressures rather than a lack of buyer interest.

“D.R Horton’s latest numbers are a story about pricing and not about demand,” he told The Epoch Times.

“Closings were up 1 percent. Revenue was down 2 percent. Orders jumped 11 percent, and unsold inventory fell 35 percent. The buyers are there, but clustered around the lower end. This volume play is a smart move in a challenging market, but how long can they keep it up, and does price and volume always have to be a trade-off?”

Greenberg also pointed to NVR’s model as notable.

“Their model does not involve owning land. And they still called out rising lot costs as a margin headwind. If the most capital-efficient builder in the industry can’t engineer their way around it, nobody can,” he said.

NVR Inc. operates a “build-on-demand” business model characterized by low capital intensity and a land-light strategy. Under this approach, the company secures control of land primarily through option agreements rather than outright ownership and initiates construction only after obtaining firm purchase commitments from customers.

This conservative operating model differs significantly from the traditional homebuilding approach, in which firms acquire and hold land before securing buyers. By avoiding large land inventories and delaying construction until demand is confirmed, NVR maintains relatively low fixed costs and minimal speculative housing inventory. These features enhance the company’s ability to manage risk and maintain stability across housing market cycles.

Sustainability

Cody Schuiteboer, president and CEO of Best Interest Financial, said the recent earnings reports suggest that the industry is undergoing a shift in its operating model.

“What they’re saying is that the old business model of ’sell at list, book margins and move on’ is dead and is replaced by the need to subsidize mortgage affordability out of their profit lines,” he told The Epoch Times.

While incentives have helped support sales in the near term, Schuiteboer said the approach may not be sustainable. Either mortgage rates will decline and ease pressure, or margins will compress further, potentially testing weaker builders’ balance sheets.

“This earnings cycle is not going to produce any revelations in terms of revenues or volumes. The actual story is in the margins and, more importantly, how much of the housing affordability problem these builders are paying for,” Schuiteboer said.