PulteGroup, Inc (PHM) Q4 2025 Earnings Call Transcript

PulteGroup, Inc (NYSE: PHM) Q4 2025 Earnings Call dated Jan. 29, 2026

Corporate Participants:

James P. Zeumer — Vice President, Investor Relations

Ryan R. Marshall — President and Chief Executive Officer

James L. Ossowski — Executive Vice President and Chief Financial Officer

Analysts:

John Lovallo — Analyst

Michael Rehaut — Analyst

Sam Reid — Analyst

Stephen Kim — Analyst

Alan Ratner — Analyst

Anthony Pettinari — Analyst

Matthew Bouley — Analyst

Trevor Allison — Analyst

Kenneth Zener — Analyst

Mike Dahl — Analyst

Jay McCanless — Analyst

Presentation:

operator

Ladies and gentlemen, thank you for standing by. Today’s conference call will begin momentarily. Until then, your lines will be placed again on a music hold. Thank you for your patience. Sa. Thank you for standing by. My name is Jordan and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Pulte Group Inc. Fourth quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you’d like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you’d like to withdraw your question, press star one again. Thank you. I’d now like to turn the call over to Jim Zoomer.

Please go ahead.

James P. Zeumer — Vice President, Investor Relations

Thank you, Jordan and good morning. I want to welcome everyone to today’s call to review Pulte Group’s fourth quarter. Operating and finance results. Joining me on today’s call are Ryan. Marshall, President, CEO Jim Osowski, Executive Vice President, CFO David Carrier, Senior vp, Finance. In advance of this call, a copy. Of our Q4 earnings release and this morning’s webcast presentation have been posted to our corporate website@pultegroup.com we’ll also post an. Audio replay of this call later today. I would highlight that today’s presentation includes. Forward looking statements about the company’s expected future performance. Actual results could differ materially from those suggested by our comments made today. The most significant risk factors that could affect future results are summarized as part. Of today’s earnings release and within the accompanying presentation. These risk factors and other key information. Are detailed in our SEC filings, including our annual and quarterly reports. Now let me turn the call over to Ryan Marshall.

Ryan R. Marshall — President and Chief Executive Officer

Ryan thanks Jim, and good morning. I hope that many of you have had the chance to review our new investor presentation we posted to our website in early December. If you haven’t seen it, I would encourage you to take a few minutes to review the deck, which is available on our website. The document is designed to provide a comprehensive review of the fundamental goals, strategies and results of our company. The process of creating a completely revamped investor presentation afforded us the opportunity to revisit many of the core tenants against which we have been operating for more than a decade.

I have to admit that it was gratifying to see that we have consistently operated in alignment with the strategies established in 2011 and how well they have helped us navigate through the housing cycle. It is also gratifying to see that the underlying operating model has delivered such outstanding results. I would note that investors have recognized and rewarded us for this performance as Pulte Group has ranked number one in total shareholder returns among homebuilders for both the past year and the past decade. This is a sustained record of success for which we are rightfully proud. PulteGroup’s 2025 operating and financial results further demonstrate the value of our differentiated operating model that emphasizes diversification and balance across markets, buyer groups and spec versus built to order production, as well as a highly disciplined approach to project underwriting and overall capital allocation.

In a year that saw buyer demand and overall market dynamics be highly variable, I am pleased to report that our operating model helped us to generate annual revenues, margins and earnings that ranked among the highest in the 75 year history of Multigroup. Among the 2025 financial results that I would highlight, we closed over 29,500 homes and generated home sale revenues of $16.7 billion. We reported full year gross and operating margins of 26.3% and 16.9% respectively, and we generated cash flow from operations of $1.9 billion. I would also note that we ended the year with $2 billion of cash after investing $5.2 billion into the business and returning $1.4 billion to shareholders through share repurchases and dividends.

I have talked about this on other calls, but a critical driver to Pulte These results in 2025 and prior years is our highly diversified business platform with homebuilding operations now established in 47 distinct markets. We benefit from having a strong presence in the Midwest, Northeast and Florida, where on a relative basis demand in many of these markets has held up better. Relative strength in these areas helped offset pressure coming from the markets where overall home buying demand was softer, such as Texas and in many of our Western markets. Beyond this broad geographic footprint, holding group continues to benefit from having arguably the deepest and most balanced buyer base in the industry.

At 38% first time, 40% move up and 22% active adult, our 2025 closings were in line with our long term targets. More importantly, our 2025 sales demonstrate the powerful impact such buyer diversification can have on our results. In a year in which demand was more challenged among first time and move up buyers, full year signups among active adult buyers increased by 6% over last year and were up 14% in the fourth quarter over the fourth quarter in the prior year. In addition to the obvious benefit to our subsequent closing volumes, our Del Webb Communities routinely deliver our highest gross margins.

Del Webb has been and will continue to be an important driver of Multigroup’s superior gross margins and most importantly, high returns. While I think we all view 2025 as a more challenging year than anticipated, Multigroup still reported $2.2 billion of net income, the fifth most profitable year in our history, and generated $1.9 billion in cash flow from operations. Consistent with our disciplined capital allocation process. We used our strong 2025 financial results to invest in the future growth of our company, investing $5.2 billion in land acquisition and development inclusive of 2025. Multigroup has invested a total of $24 billion in land acquisition and development over the past five years.

We believe our disciplined land investment will enable us to routinely achieve community count growth in the range of 3 to 5% in 2026 and in the years beyond. As part of our keen focus on advancing a homebuilding platform that can consistently deliver strong financial results, as reported in this morning’s earnings release, we have made the strategic decision to divest of our off site manufacturing operations. ICG has proven to be a strong operator that can consistently deliver high quality house shell components that has delivered many benefits to our extending home building platform. But we have determined that our business, that our business and in turn our shareholders are best served by us focusing on our core home building operations.

After the sale, we will be able to benefit from any innovation in off site manufacturing achieved by the building component suppliers, many of which are making significant investments in technology and innovation while we focus on our core competencies. Having recorded another year of strong results, Holte Group enters 2026 in an exceptional financial position with $2 billion of cash and a net debt to capital ratio of negative 3%. We also control a land pipeline of 235,000 lots that will allow us to continue growing community count in 2026. As such, I am optimistic about the year ahead and Pulte Group’s ability to capitalize on any opportunities the market may present.

Now let me turn the call over to Jim Osowski for review of our Jim

James L. Ossowski — Executive Vice President and Chief Financial Officer

Thanks Ryan. Consistent with Ryan’s comments, our fourth quarter performance kept another year of excellent operating and financial results which I’m excited to review. We recorded net new orders in the fourth quarter of 6,428 homes, which is an increase of 4% over Q4 of last year. The increase in net new orders for the quarter reflects a 6% increase in and average community count to 1014 in combination with a 1% decrease in absorption pace to 2.1 homes per month. Reflective of the challenging demand conditions we experienced over the course of 2025, we realized a full year absorption pace of 2.3 homes per month compared with 2.6 homes per month for all of 2024.

For the fourth quarter, our cancellation rate as a percentage of starting backlog was 12% compared with 10% in the prior year. For the fourth quarter, net new orders among first time and active adult buyers increased 9% and 14% respectively over Q4 of last year. Comparatively, net new orders in our move up business declined by 5% in the prior year. Fourth quarter by buyer group net new orders in Q4 2025 were 39% first time, 38% move up and 23% active adult. This compares with 37% first time, 42% move up and 21% active adult in the fourth quarter of 2024.

As we have discussed on prior calls, new community openings are helping to increase our active adult business as we grow that segment towards our targeted range. 25% of total unit volumes for fourth quarter home sale revenues totaled $4.5 billion which is down 5% from the fourth quarter of last year. Lower home sale revenues for the period reflect a 3% decrease in closings 7821 homes in combination with a 1% decrease in the average sales price of closings to $573,000 by buyer group, closings in the fourth quarter were 37% first time, 39% move up and 24% active adult.

In the prior year fourth quarter our closing mix was 40% first time, 40% move up and 20% active adult. In response to questions we have received, I would Note that our Q4 closings included approximately 100 build for rent homes. Given our strategic approach to BFR has always been a small part of our operations and accounted for less than 2% of full year 2025 closings. Our year end backlog totaled 8,495 homes with a value of $5.3 billion and we ended 2025 with 13,705 homes in production of which 7,216 were spec home. Consistent with our stated strategy, our spec inventory is down 18% from the end of 2024.

We have remained disciplined in managing spec starts as we rebalance our product mix work to increase the percentage of built to order homes in our production pipeline. Given the number of homes under construction in their stage of production, we expect to close between 5,700 and 6,100 homes in the first quarter of 2026. We also have provided a guide for full year 2026 closings in the range of 28,500 to 29,000 homes. Based on pricing in our backlog and the anticipated mix of closings, we expect the average sales price of closings to be in the range of $550,000 to $560,000 for both the first quarter and full year of 2026.

As Ryan discussed during his comments given investment made in prior years as the land pipeline of 235,000 lots under control, we expect our average community count for all four quarters of 2026 to be 3% to 5% higher than the comparable quarter of 2025. For our fourth quarter, we reported gross margin of 24.7% compared with 27.5% in Q4 of last year. As noted in this morning’s press Release, our reported fourth quarter gross margin includes $35 million or 80 basis points of land impairment charges. In addition to these charges, Fulte’s fourth quarter gross margin was impacted by higher incentives of 9.9% of gross sales price.

This compares with 7.2 in Q4 of last year and 8.9% in in the third quarter of 2025. Higher incentives for the quarter were primarily the result of our effort to sell finish spec inventory as we closed out 2025. We currently expect to realize gross margins of 24.5% to 25.0% for both the first quarter and for the full year of 2026, but recognize that the spring selling season will be a key driver of our financial results this year. Embedded within our margin guide is the expectation that our house costs in 2026 will be flat slightly down relative to 2025 on a year over year basis.

We expect our lot costs in 2026 to increase by 7% to 8% from 2025. Our reported gross fourth quarter home building SGA expense of $389 million for 8.7% of home sale revenues includes an insurance benefit of $34 million recorded in the period prior. Home building SGA expense of $196 million or 4.2% of home sale revenues includes an insurance benefit of $255 million. We remain thoughtful in managing our overheads as we continue to identify opportunities to adjust spending levels while still meeting our high standards for build quality and buyer experience. For the full year 2026, we expect our SGA expense to be in the range of 9.5% to 9.7% of home sale revenue.

Given the typical lower delivery volumes, we realized first quarter of the year. SG&A expense in Q1 is expected to be approximately 11.5% of home sale revenues. In the fourth quarter. We reported other expenses of $99 million, which includes a charge of $81 million resulting from the expected divestiture of our off site manufacturing operations. For the fourth quarter, our financial services operations reported pre tax income of $35 million, which is down from pretax income of $51 million in the fourth quarter of last year. Financial services pretax income for the period was impacted by a number of factors including lower ASPS and closing volume in our homebuilding operations and a lower mortgage capture rate.

Our mortgage capture rate in the fourth quarter was 84% compared with 86% last year. Fulte Group’s reported pre tax income for the fourth quarter was $655 million. In the period we reported a tax expense of $154 million or an effective tax rate of 23.4%. Our effective tax rate benefited from renewable energy tax credits recorded in Q4. Looking ahead to 2026, we expect our tax rate to be approximately 2024.5%. Our expected tax rate does not take into consideration any discrete period specific tax events that might occur. For the fourth quarter, we reported net income of $502 million or $2.56 per share, which compares with a reported net income of $913 million or $4.43 per share in the fourth quarter of 2020.

For the full year, PulteGroup reported net income of $2.2 billion or $11.12 per share. Our Q4 earnings per share was calculated based on 196 million diluted shares outstanding, which is down 5% from the prior year and reflects the impact of our systematic share repurchase program. In the fourth quarter, Multigroup repurchased 2.4 million common shares for $300 million, including our Q4 activity. We repurchased 10.6 million common shares in 2025 for $1.2 billion for an average price of $112.76 per share. We ended the year with $983 million remaining under our existing share repurchase authorization. In the fourth quarter we invested $1.4 billion in land acquisition and development, which was evenly split between the two activities.

For the full year, we invested a total of $5.2 billion in land acquisition and development, of which 52% went for the development of existing land assets Inclusive of our Q4 investments, we ended the year with 235,000 lots under control. This is comparable with the fourth quarter of last year, but down on a sequential basis by 5,000 lots from Q3. As we continue to carefully review each land deal, make tactical decisions to exit select transactions, it is fair to say that the slower housing environment is beginning to have an impact on the land dynamics of some markets around the country.

Depending on the market, the seller and the underlying land asset, they’re finding opportunities to renegotiate deals, to adjust the timing, the price or sometimes both. Our land teams have and continue to do an excellent job reviewing every transaction to ensure deals still meet our risk adjusted return hurdles given current prices and paces. Our local teams are also looking for opportunities to upgrade positions should land deals that were previously under contract back to market. As Ryan mentioned earlier, we generated $1.9 billion of cash flow from operations in 2025 as we managed our housing starts, controlled land spend and closed incremental homes in the fourth quarter.

We will maintain the same disciplined approach in 2026 as we align investments into the business buyer activity. Given current current market dynamics and our expected 3% to 5% growth in community count, we are projecting land acquisition and development spend $5.4 billion in 2026. Assuming this level of land spend and the expectation that house inventory will increase commensurate with an increased level of built order home sales, we expect 2026 cash flow generation to be approximately $1 billion. And finally, we ended the year with exceptional financial strength and flexibility as we had $2 billion of cash and a debt to capital ratio of 11.2%.

Adjusting for the cash balance, our net debt to capital ratio of quarter end negative 3%. Now let me turn the call back to Ryan for some final comments.

Ryan R. Marshall — President and Chief Executive Officer

Thanks Jim. Appreciating the more challenging market conditions, I still look back on 2025 and say it was a good year. As you heard repeatedly, demand was highly variable as consumers responded initially to movements in interest rates and later to a slowing economy which pressured jobs and as important, consumer confidence. All that being said, monthly absorption rates followed a typical seasonal pattern for the year and through the fourth quarter. The first few weeks of January also demonstrated the expected seasonal increase in demand as we move from December into the start of the new year. It’s too early to glean much in terms of the strength of the entire spring selling season other than to say we remain optimistic as was the case through much of the year.

In the fourth quarter we continue to realize stronger homebuyer demand in key markets in the Northeast. In many parts of the Midwest and the Southeast, fourth quarter demand is seasonally slower, but on a relative basis we saw positive homebuyer activity in markets that included Boston, the Northern Virginia D.C. area as well as Chicago, Indianapolis and Louisville and then entering extending down into the Carolinas. Once again I have to recognize the success of our Florida operations which generated year over year increase in fourth quarter signups of 13%. Beyond the strength of our land positions and our overall home building operations throughout the Florida markets, data suggests that new and existing home inventories are generally stable to improving modestly.

Obviously, a strengthening housing market in the state of Florida would be a huge boost to the industry. We closed out the year with our Texas and West markets continuing to experience sluggish demand trends. Although we may be seeing some signs of bottoming in Dallas and San Antonio at this time, I would tell you that improvements in the pace of sales are likely the result of pricing actions as we work hard to find a clearing price and turn assets. This is particularly true with regard to finished spec inventory that we needed to clear looking ahead to 2026, the industry enters a new year with improved affordability as mortgage rates are almost a full percentage point lower than a year ago and whether through price reductions or incentives, new home prices have reset lower while consumers benefited from another year of income growth as wages increased by upwards of 4%.

A more financially capable consumer in combination with an improving affordability picture puts the industry in a much better position heading into the 2026 spring selling season. Given these dynamics, I think consumer confidence will be a critical component to determining just how strong buyer demand will be in the months to come. Before opening the call to questions, I want to recognize and celebrate the entire Fulton team. Beyond the outstanding financial results, you continue to set the industry standard for build quality and customer satisfaction in 2025. You have been relentless in your efforts and I am so proud of all that you’ve accomplished in these areas.

Now let me turn the call over to Jim Zoomer.

James P. Zeumer — Vice President, Investor Relations

Great. Thanks Ryan. Now prepare to open the call for questions so we can get to as many questions as possible. During the remaining time of this call, we ask that you limit yourself to one question and one follow up. Gordon, if you would. We’re prepared to take question and answer. Prepare to implement question and answer now.

Questions and Answers:

operator

Your first question comes from the line of John Lovalo from ubs. Your line is live.

John Lovallo

Thanks guys. I appreciate you taking my questions. And Ryan, we share your optimism heading into the year versus heading into the beginning of last year, I think the setup is a lot better. But maybe starting with just SG&A, you guys did a really good job of managing that in the quarter, despite home sales being down about 5% year over year. Can you just help us with some. Of the levers that you may have pulled and what else can be done on the SG and a front?

Ryan R. Marshall

Yeah, you know, John, we didn’t make a ton of kind of changes. I think we’ve always prided ourselves in being balanced and consistent. We put a lot of incremental investment into our people. We’re five years in a row now recognized as the top 100 best company to work for. We make incremental investments in quality and customer experience. So aside from that, we’ve really just tried to run kind of a balanced, thoughtful business. Not be wasteful, but make sure that we’re, you know, invested in the right places. You know, we, we have made some targeted reductions in force in a handful of markets.

We did that in the November time frame of last year. Pretty small numbers overall, but it was focused in some of the markets that you might expect that were a little slower. Texas and some of the western markets. Beyond that, John, I wouldn’t tell you that there’s anything that I call out as extraordinary.

John Lovallo

Okay, that’s helpful. And then I wanted to touch on icg. I mean, you know, we’ve been pretty big proponents of off site construction and the benefits there. I can understand not wanting to vertically integrate it, but I guess the question is, you know, what is your view overall on just technology and fusion in into home building as a longer term solution to the chronic undersupply?

Ryan R. Marshall

Yeah, John, I think that’s the spot that I would highlight is we are huge proponents of the innovation possibility and the ability to incorporate it into the home building machine. And we’ve learned a lot over the last six years, gotten a ton of benefits in kind of what the overall housing operation has derived from the innovation that’s happened there. We’ve just come to the conclusion that we think we’re better off focusing on the core competency, buying land, entitling, developing, building homes and including icg and whoever the eventual owner of that will be. Combined with many of the other national off site manufacturers, they’re making a truckload of investment in innovation and we think we’ll be able to continue to benefit from those innovations, that innovation spending into the homebuilding operation without necessarily being a direct owner of it.

John Lovallo

Yeah, makes sense. Thank you guys.

operator

Your next question comes from the line of Michael Real from JP Morgan Chase, your line is live.

Michael Rehaut

Hi, thanks for taking my questions. Good morning, everybody. First question. About to get maybe dive in a little bit to the full year gross margin outlook that you laid out on the call and appreciate that given that it’s maybe a step more in the direction of guidance than some of your peers are willing to do. Wanted to understand the assumptions, particularly as you anticipate your first quarter gross margin. It seems like being sustained throughout the year and what that means in terms of the progression of the year, because you would think land costs maybe continue to go up throughout the year as just kind of a long term trend.

So I was just wondering the components of that as you think sequentially throughout the year, how you’re thinking about promotions. If promotions or incentives stabilized, they obviously rose throughout 2025, you know, labor materials and if there’s any positive impact from the divestiture of icg.

Ryan R. Marshall

Yeah, hey, Mike, it’s Ryan. Appreciate the question. And we take kind of the process of giving guidance very seriously, as I’m sure you can appreciate. We go through and we try to evaluate every element of every element of the, you know, the P and L that contributes to the margin guide. Our expectations are really to see ASP flat through the year. We’ve kind of given a guide that’s the same for Q1 and the full year. We do expect our house costs to go down slightly, the sticks and bricks. Jim talked about that in his prepared remarks.

We’re anticipating land costs to increase in the range of 7 to 8%. And we’d expect to see the discounts remain elevated. You know, we’d hope, and we’d be optimistic that we can pull back just a tad on those discounts. But you know, broadly, we think they’re going to remain elevated. So, you know, we, we strive to keep our margins best in class. We’ll endeavor to do that in 2026 as well. And as you know, ultimately what we’re focused on is driving the best return on investment. And we manage kind of pace and price, you know, toward an outcome that gives us the optimal return for the shareholder.

And look, we think it’s worked. And it was the reason in my opening comments, I said we’ve, you know, that strategy and the way we operate has generated the highest tsr, not only for the last year, but also the last decade. So, you know, I would say those are the big components of how we think about margin.

Michael Rehaut

No, that’s great. Thank you for that. And I guess secondly, you mentioned in your prepared remarks Ryan, around maybe some of the inventory trends that you’re seeing starting perhaps to stabilize in Florida. We’ve seen some of that as well. Concern of our statistics. I was wondering if you could kind of go through your major markets if possible, and particularly from a supply perspective, from an inventory perspective, as you look at your major markets, how the trends have been over the last three to six months and if you would describe that stabilization as kind of broad throughout your footprint or if there’s some areas that are still, you know, rising, perhaps, or even some that are starting to come in a little bit.

Ryan R. Marshall

Sure. Florida is an important market for us, Mike, and we’ve talked, we’ve tried because it’s such an important market to us, and we think all of housing, really, we’ve tried to talk about it every quarter. It’s up 14% over last year. So we had good sales in the quarter. I’d start there. Generally, I would tell you every market is positive, but there are some outperformers. The outperformers, Fort Myers, Naples, the east coast of Florida, so Palm Beach, Vero beach, kind of Fort Lauderdale, Orlando continues to be exceptional. You know, Tampa has been stable, but, you know, not as good as the others.

And I put Jacksonville in that same category.

Michael Rehaut

Okay, when you talk about that, you’re referring to the order trends, not. Not the inventory. Just. Just clarifying.

Ryan R. Marshall

Correct. I’m speaking to order trends. That’s right. That’s exactly right, Mike.

Michael Rehaut

Thank you.

operator

Your next question comes from the line of Sam Reed from Wells Fargo. Your line is live.

Sam Reid

Thanks so much, guys. Wanted to unpack the step up in incentive loads from the third to fourth quarter. Believe they were up about 100bps sequentially. Based on the prepared remarks, it sounds like a lot of that was geared towards clearing spec inventory. So we’d just love to hear the levers that you pulled to clear the spec inventory, maybe delineate between price reductions versus buy downs, and then talk a little bit about incentive loads into the first quarter and what’s embedded in that guide.

James L. Ossowski

Thanks for the question, Sam. Yeah, the increase in the fourth quarter really was, you know, the incentives to move some of the speculative inventory. You know, we closed a couple extra 100 units, you know, at the over the high end of our guide. And so we got a little bit more aggressive in some places. So that’s really where it’s coming from. You know, financing incentives for the quarter were flat. It was really just had to get a little bit lean in a little bit more in some places. And so that’s we did in the fourth quarter.

Ryan R. Marshall

Sam, you had a question about Q1 that I. That I didn’t hear. What was your Q1 question? Just on the incentive loads into the first quarter, talking through the guide path there, Q4 to Q1. Yeah, I point you back to the answer that I gave to Mike. We’re, you know, we don’t specifically guide to incentive loads other than we’ve given you a margin guide for the quarter. And I made the comment that our expectation is incentives will remain elevated.

Sam Reid

All. Helpful, and then moving to stick and brick. So obviously hearing that thick and brick is going to be lower in 2026. Any categories? So I’m thinking of material categories where you’re getting price concessions. We’d just love to hear the wins that you might be achieving here to get the lower stick and brick and then perhaps also talk through the labor component and just what you’re seeing on the labor side.

James L. Ossowski

Thanks. Sure. So, you know, for your benefit, in the fourth quarter, our sticks and bricks were $78 a square foot, so slightly less than what they’ve been for the past year. And as we said in our prepared remarks, they’ll be down flat to down slightly next year. You know, some of the things we’ve seen, a little bit of help on the lumber side, a little bit of help on the labor side. Materials are kind of ups and downs. You know, the one thing I’d say is included in that, you know, the impact of tariffs are in that guide of slightly down for next year.

So again, I think our procurement teams are doing a great job. The labor is available in the market, and so we see it as a good opportunity for next year.

Sam Reid

Always appreciate the color, guys. Thanks so much. Thanks, Sam.

operator

Your next question comes from the line of Stephen Kim from Evercore isi. Your line is live.

Stephen Kim

Yeah, thanks a lot, guys. Appreciate all the colors so far. Your spec levels look like they were pretty well contained by the time you got to the end of the fourth quarter. I’m curious if you think that there’s additional reduction there. I think I have you about a set little basically at seven specs per community. Was wondering if you could give us some sense or where you’d like to see that as you head into 26 and assuming that your specs will be less of a headwind. I’m curious why you’re not assuming that you might see any reduction in your incentives.

If I heard you correctly, Ryan, what I’m getting from your guidance is that your guidance does not assume any reduction in incentives and it feels a little conservative to me. So I’m just curious, am I reading that right or is there something maybe that I’m missing? Maybe the spec level you think may actually rise next year for some reason? So just a little color there, combining those.

Ryan R. Marshall

Sure, Stephen. So let me start with the specs. We’re comfortable with where we’re at right now, but we have worked very hard through the last three to four months to make sure that our start rate matches our sales rate and that we weren’t adding to the specs that we have. Ideally, what we’re really endeavoring to do is to move back more into a built to order builder where 60 plus percent of our sales are built to order, 40% are spec. The last couple of years we’ve kind of been inverted, been 60% spec, 40% dirt, and you know, it won’t happen overnight, but we’re moving the company slowly back in the direction of more built order.

We think that’s better for the way that we have our capital allocated. The home building business. Our margins are higher on built to order, so we’re kind of threading that needle. Our financial services team has done a wonderful job helping to put some forward commitments in market that actually can be used on built to order homes. So we’re finding a way to kind of get the best of both worlds and making sure that we’re tackling the affordability challenge while still moving into or closer into a build to order model that we want to be. So as we go into the spring selling season, Stephen, our goal is going to be to sell dirt in a higher percentage than spec while still having some spec available, especially in the, you know, the entry level price points as it relates to the incentives.

The spring selling season I think is ultimately going to kind of dictate what we’re able to do with incentives. We would certainly be optimistic and hopeful that we can pull those down from where we’re at. You know, we’ve given the full year guide that incorporates assumptions that we’ve made around the incentives, plus the increase in lot costs, which is not insignificant at 7 to 8%, a little bit of a, you know, a tailwind or a help from lower house costs. So, you know, we think the range is where we sit in kind of early or late January, early February.

I think it’s pretty good range. But, you know, we’re optimistic that, you know, maybe there’s more.

Stephen Kim

Yeah, appreciate that. So if I can just put a little color around what you said, if you were to return back to sort of a BTO mix. I look and see that pre pandemic you all were running kind of like three to four specs per community, which is pretty significantly lower than where you are now. So if I’m reading what you’re saying right, it sounds like there’s going to be this transition that’s taking place. And as that transition does take place, your turnover rate, I would think would go down. Your backlog turnover rate would go down because you wouldn’t be carrying as many specs and be doing more.

Build to order. Your closings guide that you’ve given would. If I have your backlog turnover ratio going down, in order for you to hit your closings guide, it would assume that your order pace is going to be up year over year, close to double digits. And so I just wanted to make sure that I am doing the math properly here and that I haven’t missed something.

Ryan R. Marshall

Yes, Stephen, not having the luxury of seeing your model, I probably wouldn’t want to comment on your math. You know, we’d certainly be happy to follow up with you on that. I would say, you know, we’ve got pretty complicated models on our side as well. And you know, we’ve, we’ve gone through and made, you know, assumptions on what our new communities are, what the absorptions are, what our sales rate’s going to be and what our monthly start rate is going to be. And it really comes down to kind of that start rate. We do have the benefit of cycle times being back the pre Covid level cycle times at around 100 days.

So, you know, again, we need the spring selling season to continue to cooperate with us and be strong. As long as that happens, we’ve got the production capability to put the starts in the ground that will allow us to deliver the closing guide that we’ve given.

Stephen Kim

Okay, great. Thanks guys.

operator

Next question comes from the line of Alan Ratner from Zelman and Associates. Your line is live.

Alan Ratner

Hey guys, good morning. Thanks for all the details so far. You know, Ryan, you brought up an. Interesting point that I was hoping to touch on. You know, in terms of the forward commitments on build to order. I think a lot of builders have kind of talked about the fact that that’s really difficult to do from a financial perspective just because you’re paying for longer lock periods. So I would love to hear a little bit more about those programs if you, that you’re offering right now in bto, what kind of rates you’re, you’re offering the consumer. And I guess just extending that to the margin profile. Of BTO versus spec right now. If you could talk a little bit about what, what that differential looks like.

Thank you.

Ryan R. Marshall

Yeah. Alan, what was the last part of that question I missed it Just the.

Alan Ratner

Margin differential between BTO and spec right now.

Ryan R. Marshall

Oh, sure, yeah, yeah, yeah. So Alan, in terms of kind of the, the forward commitments, it’s really driven by the faster cycle times. So you know, we’re overall for the entire Enterprise we’re at 100 days on single family we’ve got some multifamily in there that takes a little longer, but on single family we’re 100 days and we have some markets that are down into the 70s. So that’s, that’s the predominant driver. And then you know, the rates that we can offer on those longer term rate blocks, they’re not quite as competitive or as low as what you might see on a spec offer, but they’re pretty good.

You know, they might be within 50 basis points of what we would offer on a, on a spec. So it depends on the community. But you know, roughly we’re, you know, we’re somewhere in the low fives, low to mid fives. So you know, roughly 100 basis points below what you could get kind of in the open market today. And then in terms of kind of margin differential between spec and built to order depends. But you know, suffice it to say, and I think we’ve been fairly, you know, consistent with this, we, we have, you know, in hundreds of basis points higher gross margins when it’s built to order.

And that is simply kind of derived from the fact that when the customer comes in and they’re able to pick out everything they want, that really works well within our strategic pricing model that allows them to pick their floor plan, their options, their lot premium. And you know, we’ve often, I don’t think we quoted it this quarter, but what we can talk about is the dollars that we make off of lot premiums and options are real and those margins are great. So that’s the biggest kind of contributor to the margin outperformance is the customer picks what they want.

Alan Ratner

Great, I appreciate that detail. And then second question on price point trends. I know you gave the data for, I think signups and closings sounded like active adult was up solidly year over year. But I guess just more qualitatively, if you could talk about the demand trends and kind of the pricing trends you’re seeing at each of your prices points and any notable shifts we’ve seen over the last call it couple of months Alongside all the policy noise and interest rates hopping around, any color you can give would be great. Thank you.

Ryan R. Marshall

Yeah, Alan, in terms of price, the biggest change in price came in the first time segment. So last year, average price in first time was 467. That’s down to 438. So we’re down about 6% in price on first time, which is where, you know, the majority of the affordability pinch is really being felt. So I think we’ve leaned in, we’ve really worked to try and address affordability. Move up in active adult pricing has really been kind of flat. So hopefully that kind of helps give you a little color on what you’re after.

Alan Ratner

Thanks a lot.

operator

Your next question comes from the line of Anthony Petnari from Citigroup. Your line is live.

Anthony Pettinari

Good morning. I was wondering if you could talk a little bit more about the 80bps of impairments in the quarter and maybe the drivers there. And I think some other builders have reported maybe elevated walkaway costs for their lot options. Are you seeing that or just any kind of color you can give us. Moving into the spring?

James L. Ossowski

Yeah, thanks for the question, Anthony. So, you know, Ryan touched on that a little bit earlier and in some of our prepared remarks, you know, we, you know, we leaned in a little bit heavier on some incentives where we had a little bit more speculative inventory out there in the market. And so, you know, the thousand communities that we operate in, we had eight of them that, you know, we took a land impairment charge on, which was really just a matter. We had to get a little bit more aggressive on pricing. And so, you know, we moved through the inventory, resulted in a charge.

And so as you said, that’s what we quoted in here. The other thing that I would tell you is, and it was in our prepared remarks, we’ve been more disciplined as we’ve been looking at it. You know, in the quarter we, you know, we put another 18,000 lots under contract, but we also walked from about 15,000. So we’re always prioritizing our land book. And so within that, there was about $22 million of land charges, which is included in our other expense categories where we classify it in the fourth quarter.

Anthony Pettinari

Okay, that’s very helpful. And then just switching gears with regards to affordability. Do you see the administration’s restrictions on institutional ownership of single family homes? Do you see that as being impactful in any of the major markets where you’re operating? And then just more broadly, are there policies? I mean, a lot has obviously been floated, but are there Policies that you think would help stimulate housing demand in kind of a sustainable way.

Ryan R. Marshall

So I’ll take the build to rent question first. Jim shared the numbers for us for both the full year and the quarter, and they’re really immaterial. We had 100 build to rent closings in the quarter, so pretty insignificant going back to the very beginning of when we even entered into the build to rent space. We strategically limited the percentage of volume that we were willing to put toward that. We just, you know, we felt that we wanted to dip our toe in the water, but we didn’t want to be overexposed. And, you know, I think hindsight being 20 20, that was a.

That was a great decision in terms of kind of markets where it could be impactful, significant. I just really don’t see it being a big deal kind of anywhere. I know that there is the perception that it’s moving prices and taking supply out of the market, you know, so I guess time will tell. We’re certainly, you know, going to adhere to the executive order and some of the things that are being talked about. And, you know, if those are the rules of the road, we’re going to play by them and it won’t really have an impact on our business.

And then, Anthony, I’m sorry, what was the other part of your question?

Anthony Pettinari

Yeah, I’m just wondering if there were policies that you think could, you know, help with affordability or home construction and help with housing activity that would be, you know, sustainable and positive from your perspective.

Ryan R. Marshall

Yeah, you know, it’s. We’ve had conversations with the administration and, you know, the administration’s been very active in leaning in and trying to address housing affordability. There’s a lot being talked about, as I know you can appreciate. It’s hard because housing remains very, very local. And so, you know, I think the entire industry, us included, are going to continue to work with, you know, the administration to try and create more supply, which ultimately will impact affordability. The American dream is. And homeownership is at the core of the American dream, and we want to make sure that we’re doing everything that we can to keep that healthy.

And I think, you know, the administration is as well.

Anthony Pettinari

Okay, that’s very helpful. I’ll turn it over.

operator

Your next question comes from the line of Matthew Bouley from Barclays. Your line is live.

Matthew Bouley

Morning, everyone. Thanks for taking the questions. I wanted to ask another one on the build to rent side. I think, Ryan, you just alluded to that. I think I heard you say you were, I Guess if I paraphrase, glad you didn’t lean as much into it as you could have. But I think the way that executive order was written the other day suggested purpose built, build for rent would still be potentially okay if that does all go through. So I’m curious if there’s actually an opportunity to do more build for rent, or is it, given what you just said? Look, the business is still too either cyclical or rate sensitive, what have you, that it’s ultimately not, not where you want to be focusing your investment.

Ryan R. Marshall

Thank you. Yeah, I would tell you, maybe taking the last piece, Matt, it’s just probably not where you’re going to see us lean in, no matter what the executive order says. I just think there’s better places for our capital that’ll drive better returns for our shareholders. We’ll see ultimately kind of what the rules end up being when the executive order is kind of fully clarified. What purpose built means. Does that mean the entire community is built for rent? Does that mean it never goes on the mls? There’s some, I think, open questions, but no matter how those get resolved, I just, I don’t see it being a huge part of our business.

Matthew Bouley

Got it. Okay, perfect. Thanks for clarifying that. And then secondly, on the incentive front, you guys in the past have commented on your mix of, I guess call it financing incentives versus other incentives, whether upgrades and options and so forth. Just curious if you can kind of comment on the trends in both of those and maybe how quickly can the different types of incentives sort of respond to this move lower in interest rates that we’ve had. Thank you.

James L. Ossowski

I would tell you the financing incentives have stayed very consistent for the past three, four quarters. Really, we’ve seen it more on the other incentives, so primarily discounting on some of the speculative homes we had. So as Ryan touched on, you know, as we get to the spring selling season and we’ve gotten our spec levels down, you know, there’s hope that there’s opportunities that maybe you can pull back on that other lever. But otherwise, financing incentives have stayed flat for us, was expected.

Matthew Bouley

Okay, thanks, Jim. Thanks, Ryan. Good luck, guys.

operator

Your next question comes from the line of Trevor Allison from Wolf Research. Your line is live.

Trevor Allison

Hi, good morning. Thank you for taking my questions. A question on your volume performance in the quarter. From an orders perspective, you outperformed historical seasonal trends for the second straight quarter. With that in mind, should we think of the roughly 2.3 absorption rate that you did in 2025 as representing a floor for you guys here? And even if we don’t get better demand conditions in 26, would you expect to work to drive absorption set 2.3 level or higher moving forward?

Ryan R. Marshall

Trevor? I think we would certainly endeavor to do more. We’d always like to sell more, you know, in terms of saying, are we at a floor? That’s, you know, that’s hard to tell. The market will ultimately kind of dictate that. We have been pretty clear though in saying kind of the way we run our business, we need a minimum amount of volume that’s got to go through every store and we tend to target that around 2. So, you know, we’re, we’re above that and you know, we didn’t endeavor to do more, you know, in such a way that we can deliver the guide that we’ve given for the full year.

So hopefully that helps.

Trevor Allison

Yeah, that is helpful. I think what I was trying to get at was kind of the minimum volume level that you guys would target that two numbers. Very helpful. And then second, just follow up question on specs. I think last quarter you mentioned your finished specs per community were about twice your target level. Sound like you guys made some real efforts to move some products in 4Q. So I may have missed it earlier, but where does your, where do you finish specs per community fit today? And with that in mind, what is your expectation for starts moving forward relative to sales?

Ryan R. Marshall

Thanks. Yeah, Trevor, so as I mentioned, for the last four or five months we’ve been matching our starts to our sales. So, you know, we haven’t really added to kind of the specs in any, any kind of way. Our total SPECs are down versus prior year by about 1500. So we’ve made a pretty significant dent in it. Spec finals sit at 2000. You know, that’s the number that’s probably a little higher than what I’d ideally like it to be just because you got a lot of capital tied up in those homes. So, you know, the number in and of itself isn’t anything that we’re overly freaked out about other than to say I think we can do better and we’d like to have less finished homes, you know, sitting out there.

Go back to, you know, the very first question that I addressed. Ideally we’d like to see kind of our business revert over time back to, you know, predominantly built to order model. We think it is, you know, it, it’s, it’s a major contributor of our kind of return outperformance. And you know, it’s hard to do. It’s hard to run a Build to order business, but we think we know how to do it. We’ve got a good model that we’ll, you know, we’ll endeavor to put back in place.

Trevor Allison

Thank you for all the color and good luck moving forward.

operator

The next question comes from the line of Kenneth Zenner from Seaport Research. Your line is live.

Kenneth Zener

Good morning, everybody.

Ryan R. Marshall

Good morning, Ken.

Kenneth Zener

Ryan team. I wonder, you know, if we find about your business, which you report consolidated and we look at it, if you could give some comments by your regional disclosure. I’m just using like third quarter as kind of a trend line for you to comment on. Florida looks like it’s basing. Texas is obviously like still facing headwinds. The Midwest, north doing excellent. But can you talk about the West? It’s a broad area for you, but the gross margins, which historically would have been higher to compensate for lower asset terms, it’s lower. What’s happening in the West? Is it where affordability is most pronounced? So are incentives greater in the west than your other regions? Is it what we’ve seen last X call it quarters.

Is there immigration issues or headwinds that are distinct in the west versus, you know, Florida or Texas? Can you just talk about why that region has appears to have a structurally greater, you know, challenge on the gross margin side? Thank you.

Ryan R. Marshall

Yeah, sure, Ken. I think we, along with the entire industry has been pretty clear for over a year and a half, the west has been a more challenged environment, predominantly driven by affordability. It does have, especially the coastal markets, some of the highest home prices in the country. And as interest rates have gone up, that certainly made that challenging. There’s also, you know, a lot of tech employment on the West Coast. And the tech sector, I think, has gone through some challenges that have contributed to the employees in the tech sector being a little more hesitant in moving forward with buying these expensive homes.

You know, we are, we are seeing in the west, we have had very good success in Las Vegas. We’ve had some, you know, pretty decent success in Arizona. The Colorado market has been, you know, more challenged. It’s, you know, expensive. And it saw a lot of the same post Covid population surge pricing surge that Texas saw. So I think it’s going through some of the similar things Texas. So that’s, that’s how I characterize the West. It’s an important part of our business. But you know, as we’ve highlighted the fact that we have such a diversified geographic platform, even with some of the challenges in the west, we’ve been able to perform incredibly well because of what our Florida, Southeast, Midwest and Northeast businesses have done.

So, you know, another advertorial kind of pitch for why the diversity in geography is so important to kind of who we are.

Kenneth Zener

Thank you very much.

James L. Ossowski

Thanks, Ken.

operator

Your next question comes from the line of Mike Dahl from RBC Capital Markets. Your line is live.

Mike Dahl

Morning. Thanks for squeezing me in. Just a couple of follow ups. One, to go back on the incentives and sorry to harp on this, but if incentives were kind of up under bips in the quarter, can you just comment on, you know, if you’re nine, nine for the quarter, does that imply the exit rate was in the low double digit range? Range? And when you, when you talk about remaining elevated, are you talking remaining elevated to that exit rate which likely would have been kind of the highest level that you saw through through the quarter and year, or should we be thinking more in line with kind of the average levels that you’ve seen?

Ryan R. Marshall

Yeah, Mike, we’re probably not going to slice the baloney quite that thin. So, you know, we were nine, nine in the quarter. We were nine the prior quarter. So, you know, the exit rate probably was a little higher than 9.9 as we moved through some of the spec inventory that Jim talked about, which primarily was in the form of just outright price discounts. Financing, as Jim mentioned, was flat, has been flat for the last three quarters. As we move into the, you know, the current year, you know, I wouldn’t, again, I wouldn’t slice the baloney quite so thin on exit rate versus quarter rate.

Just look, our expectation is that we’re going to continue to lean into the forward commitments. It’s a real important part of addressing affordability. We’re going to make sure that we’re priced right in a competitive way, both against resale and other new home competitors. And then all that said rolls up into the margin guide that we’ve given them 24 and a half to 25, which, you know, kind of no matter the housing cycle and particularly in this environment, I think is outstanding margin, absolute margin performance. So I guess I’d leave it there.

Mike Dahl

Okay, understood. Right. And then second one, just back on icg, I guess, you know, your company and its predecessors had previous experience in owning some of these assets, exited. Then when you bought icg, it was supposed to be kind of like the next evolution and something that would be different. And I guess I’m just wondering what ultimately catalyzed your decision here that just for whatever reason, you know, this, you reach the decision that this doesn’t make sense and can we Think of this as I don’t. Nothing’s ever final. But this is basically now your philosophical view going forward, that you don’t need to own assets like this in a vertically integrated way.

Ryan R. Marshall

Yeah, I think it’s a couple of things. Number one, we bought it right as Covid was starting. So I think the supply chain challenges and some of the things that happen kind of in a post Covid environment certainly slowed us down in kind of our ability to get some of the gains out of it that we wanted. We’ve also seen a lot of the other suppliers, off site manufacturers make tremendous investments into this space, and they’ve got way more scale than what we have. And so when we think about what’s the best kind of allocation of our capital, not only for the current operation, but also to grow, we just think that we’re better.

We are. And our shareholders are better by putting capital to grow in other places. So as much as anything, it’s really about kind of a capital allocation question. We really believe in the innovation that we got out of icg. We believe we’ll continue to benefit from that innovation, you know, but it comes down to, you know, what’s the best allocation of our resources? Both time, money and focus is probably the short answer. So with that, I think we probably have time for maybe one more question. Operator.

operator

Your next question comes from the line of Jay McCandless from Citizens. Your line is live.

Jay McCanless

Hey, good morning. Thanks for taking my questions. The first one just wanted to square up the commentary that Jim Osowski made about being able to maybe reprice some land deals and relating that to the land inflation you talked about 7 to 8% for this year. Is there any chance y’ all could work that number down as you rework some of these land deals?

James L. Ossowski

Great question, Jay. I would tell you, you know, the land that we’re, you know, under contract or we’re seeking to buy right now, the ones that we’re renegotiating, those are, you know, 20, 27 and 28 closings. So, you know, really the increase that’s, that’s in our guide for this coming years, land we bought a couple years ago. So really don’t see the opportunity in the short term. But as we look to the, to the long term, that’s certainly our goal, is to see if we can get some price out of it.

Jay McCanless

Okay, great. And then my second question, you know, you guys, the last couple quarters have talked about Del Webb communities, more of them coming online. Just wanted to get an update on that and, and see if that’s still going to be the case in 26.

Ryan R. Marshall

Yeah, Jay, it is. You see it in the signup trends in the quarter. And even in the full year, you know, we’re up to in the Most recent quarter, 24% of our closings were from Del Webb, 23% of the signups in the quarter were Del Webb. So those new communities have opened in the last kind of one to two quarters. We’ve got some more that are coming next quarter, which is, you know, what? We always said that, you know, in 2026, you’d see us get back up to that kind of targeted mix of 25%. With that, we’re going to wrap up this morning’s call.

We’ll certainly be available over the course. Of the day for any follow up questions. We thank everybody for your time this. Morning, and we’ll look forward to speaking. With you on our next earnings call.