By Nicholas G. Miller

D.R. Horton recorded a lower fourth-quarter profit and said it expects to continue offering significant incentives to stimulate sales in a stubbornly slow market.

"New home demand is still being impacted by ongoing affordability constraints and cautious consumer sentiment, and we expect our sales incentives to remain elevated in fiscal 2026," said Executive Chairman David Auld.

In the fourth quarter, the builder's gross margin on home sales fell to 20% from 21.8% from the previous quarter, which it attributed mostly to offering larger incentives. "We did lean into the incentives pretty hard in the quarter," said Chief Executive Paul Romanowski in the company's earnings call.

The company said a higher percentage of customers received mortgage rate buydowns and that it was leaning heavily into its promotion of buying down mortgages to 3.99%.

Average sales price in the quarter fell 3% from the previous year to $365,600, with the company relying on larger incentives and more sales of smaller homes. D.R. Horton said it expected average sales price to continue falling in coming quarters for the same reasons.

Across the industry, home builders have suffered from stagnant home sales as high mortgage rates and economic uncertainty have put off buyers. Many builders have been forced to offer aggressive sales incentives, often in the form of mortgage buydowns, cutting into their margins.

Markets have been particularly soft in areas of the West and South, where home sales boomed during the pandemic. That led companies to build more in those regions, but now buyers have pulled back, leaving inventories elevated.

"Notably Jacksonville and southwest Florida have had some excess inventory, and demand has been a while coming to absorb that," Romanowski said.

Mortgage rates have declined in recent weeks, sparking hope of a recovery in home sales. But economists say rates could still remain above 6% for the foreseeable future, limiting potential affordability gains.

A weakening labor market also has raised concerns that the housing market may remain stubbornly slow, even with lower mortgage rates.

"We need to see consistent, sustainable job growth to drive growth in the housing market," Romanowski said.

Home builders have said they have recently seen an uptick in traffic to their websites, but those visits are not yet converting into sales. That could be a positive indicator for future sales, with many builders banking on a rebound during the spring selling season next year.

For now, some builders have been pulling back on new starts in order to preserve margins while waiting for the downturn to end. D.R. Horton said in the fourth-quarter, it moderated its starts to adjust to the soft demand and lower its inventory.

"Overall our starts pace needs to move up," Romanowski said. The company recorded 14,600 starts in the fourth-quarter, which Romanowski said is "well below what we need to be doing on a quarterly basis."

For the fourth-quarter, the company posted net income of $905.3 million, or $3.04 a share, down from $1.28 billion, or $3.92 a share, the year prior. Analysts had expected $3.27 a share, according to FactSet.

Total sales fell to $9.68 billion from $10 billion the year before. Analysts expected $9.41 billion.

The company guided for fiscal 2026 revenue of $33.5 billion to $35 billion. Analysts expect $34.71 billion.

Write to Nicholas G. Miller at nicholas.miller@wsj.com.

(END) Dow Jones Newswires

October 28, 2025 12:26 ET (16:26 GMT)

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