By Shaina Mishkin

First-time buyers are taking advantage of deals and incentives from home builders. That's not necessarily good news for the financials of the companies offering them.

The national housing market looks crummy for sellers of all kinds. Zillow on Monday said that 26.6% listings saw a price cut in June, the largest share for that month since at least 2018. The highest share of home builders since at least 2022 -- 38% -- cut prices in July, according to the National Association of Home Builders.

"Builders often, as the last resort, cut prices," says Robert Dietz, the chief economist of the home builders association. "The fact that that [statistic] is near 40%, when a year ago, it was near 25%, is a signal that the housing market is softening."

Wall Street expects continued industry doldrums to show up in the earnings of two large builders slated to report before the market opens on Tuesday.

Analysts expect that D.R. Horton will report third-quarter earnings of $2.89 a share on about $8.8 billion in revenue, down from $4.10 a share on just under $10 billion in the same quarter one year prior, according to FactSet estimates.

PulteGroup is expected to report earnings of $2.95 a share on about $4.4 billion in revenue, down from $3.83 a share on $4.6 billion one year prior.

The slow pace of home sales won't be the focus but how companies are handling it will. Builders serving first-time buyers might have to keep using their margins to complete those deals, analysts wrote recently.

The share of these buyers purchasing from builders has increased over the past several years, Evercore analyst Stephen Kim wrote in a note earlier this month. In 2024, first-timers represented 40% of builder sales, down from the year prior but well above the 32% share before the pandemic, the National Association of Home Builders wrote in September.

"This isn't good news," Kim said. In a resale market with a dearth of available entry-level homes, "builders have no choice but to meet this demand by bringing down their [average selling prices] and margins," he writes.

Home-building margins and new home orders will be a focus for both PulteGroup and D.R. Horton. Analysts expect that the companies will report 26.6% and 21.2% margins, respectively, and record 7,221 and 22,114 new home orders.

When it comes to builders, both PulteGroup and D.R. Horton have been relative outperformers -- though neither has beat the S&P 500's 7% gain this year. As of Friday's close, PulteGroup stock was about flat year-to-date, while D.R. Horton was down 5.7%, both beating the iShares U.S. Home Construction exchange-traded fund's 8% drop, according to FactSet.

Analysts will look for signs that builder margins are hitting their bottoms, Barron's previously reported . Expect future margin and orders guidance, along with associated commentary, to be of particular interest.

Even if margins show signs of bottoming out, a builder turnaround is likely still far in the future. "We expect the challenging environment for home builders to persist into 2H25," BofA analyst Rafe Jadrosich wrote in a report earlier this month, noting that incentives and price reductions, two tools builders use to stimulate demand, will continue.

That could be particularly true if first-time buyers continue to turn to prefer the new-home market over their odds in the resale market. "We [...] expect an aggressive promotional environment, especially at the low end, to clear inventory ahead of spring 2026 could be another gross margin headwind," Wedbush analyst Jay McCanless wrote in a recent report.

Meanwhile, investors should keep their eyes on signs of the resale market loosening up. The National Association of Realtors will release its June existing-home sales data on Wednesday.

"Someday, the low end of the existing home market will finally "unlock," and when it does, the builders will see a richer mix of move-up buyers once again," Evercore's Kim wrote. "Until that happens, though, they'll have to just keep on grinding."

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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July 21, 2025 15:54 ET (19:54 GMT)

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