The late months of 2025 have not been kind to America’s largest homebuilders. What started as a measured slowdown early in the year has turned into a test of discipline and adaptability for an industry that spent the last few years racing to meet demand. Now, companies like Lennar Corporation (NYSE: LEN) and D.R. Horton, Inc. (NYSE: DHI) are selling more homes but making less money doing it.
Lennar’s latest quarterly results told the story clearly. The company’s fourth quarter home-building revenue fell 7% year over year to $8.9 billion, even as deliveries rose 4% to 23,034 homes. On the surface, that might look like progress, but the average selling price dropped almost 10% to $386,000, the result of deep discounts and incentives now averaging around 14%. Those price adjustments have eaten into profitability, with gross margins sliding to 17% from 22.1%. The company’s net earnings came in at $490 million, far below last year’s figure, missing analyst estimates and prompting a cooling reaction from investors.
Over the full fiscal year, Lennar managed to deliver 82,583 homes, a modest 3% increase from 2024. Yet management offered only a cautiously optimistic forecast for 2026, anticipating roughly 85,000 deliveries and acknowledging that pricing pressure may not ease soon. Cost cutting remains central to the strategy, including a 5% reduction in direct construction expenses. Despite those efforts, the broader environment is a bigger challenge: mortgage rates have held stubbornly high, affordability remains a national conversation, and buyer confidence has weakened, especially in entry-level segments.
D.R. Horton, the undisputed volume leader in the U.S. market, faces similar trade-offs. The company’s scale gives it certain advantages in procurement and land management, but it cannot escape the same headwinds. Analysts suggest it, too, has leaned on incentives to move inventory, echoing the pricing tactics seen at Lennar. Earlier in 2025, D.R. Horton’s closings kept it firmly at the top of industry rankings, yet even those numbers now appear harder to sustain as demand softens and new listings take longer to clear.
The economic backdrop compounds these pressures. Inflation has cooled but not enough to bring mortgage rates meaningfully down, leaving buyers squeezed between wage growth and financing costs. Builders have learned to operate in tighter conditions before, but the current mix of high rates, cautious consumers, and shifting demographics requires a slower pace of construction and a sharper focus on liquidity.
Industrywide, the response has been to prioritize volume and maintain employment while accepting thinner margins. Smaller regional builders are feeling the weight more acutely, lacking the scale needed to absorb higher input costs or extend aggressive incentive programs. It is a moment of separation between the industry’s giants and its dependents, where efficiency and capital access determine who can hold steady when the market turns cautious.
Even so, the adjustments are not without strategy. Lennar’s continued investment in controllable costs and D.R. Horton’s focus on build-to-rent projects suggest that both companies see opportunity in adapting their models before conditions fully stabilize. If the Federal Reserve begins to cut rates in 2026, the pendulum could shift back toward firmer pricing and renewed demand. Until then, the game is about endurance more than expansion.
