MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 641,000 units in February, based on application data and assumptions about market coverage. That is down 3.3% from an estimated 663,000-unit pace in January.

On an unadjusted basis, MBA estimates there were 57,000 new-home sales in February, down 1.7% from 58,000 in January.

Kan said macroeconomic uncertainty and a weakening job market likely weighed on demand, and he pointed to emerging signs of cooling in some high-supply Sun Belt markets despite slower home-price growth.

By product type, conventional loans made up 49.4% of February new-home purchase applications. Federal Housing Administration (FHA) loans accounted for 35.3%, U.S. Department of Veterans Affairs (VA) loans for 14.1% and Rural Housing Service/U.S. Department of Agriculture (USDA) loans for 1.2%, MBA reported.

The average new-home loan size declined to $383,570 in February, down $385,506 in January, suggesting some shift toward slightly lower price points or smaller loan balances.

MBA’s Builder Application Survey tracks application volume from mortgage subsidiaries of homebuilders nationwide and is viewed as a leading indicator for the U.S. Census Bureau’s New Residential Sales report, which records new-home sales at contract signing.

The February data underscores a key dynamic in the 2026 housing market: new construction continues to capture demand that existing-home supply cannot meet, but monthly volatility remains tied to interest rates, employment and regional inventory patterns.

For lenders focused on purchase business, the steady year-over-year gain in new-home applications — alongside a modest drop in average loan size and elevated FHA share — points to a market where entry-level and first-time buyers remain active but rate-sensitive.

For builders and their mortgage affiliates, the pullback from January suggests that incentive strategies, rate buydowns and product mix will remain critical as higher inventory in some Sun Belt markets meets softening demand.

A delayed December new-home sales release showed a slight increase in 2025 over a year earlier, but median new-home sales prices decreased, reflecting a challenging homebuilding market weighed down by cost reductions, elevated incentives and a slower-than-expected sales pace. 

“New home sales ended 2025 on a mixed but resilient note, signaling steady underlying demand despite ongoing affordability and supply constraints,” wrote Danushka Nanayakkara-Skillington, Assistant VP for Forecasting and Analysis at the National Association of Home Builders. “The latest data released today (and delayed because of the government shutdown in fall of 2025) indicate that while month-to-month activity shows a small decline, sales remain stronger than a year ago, signaling that buyer interest in newly built homes has improved.”

According to the U.S. Census Bureau’s New Residential Sales report released on Friday, new home sales were at a seasonally-adjusted annual rate of 745,000 in December, a decline of 1.7% month-over-month from November, but a 3.8% year-over-year increase. However, the median sales price of new homes sold in December declined 2.0% year over year, from $423,000 to $414,000.

Sales volume grew 30% in the Midwest, and inched up more modestly in the Northeast (12.1%) and the West (1.8%). The South experienced a 1.2% decline in sales activity, but the region still accounted for nearly 6 out of every 10 new homes sold nationwide.           

The South is the nation’s fastest-growing region, but homebuilders across the Sun Belt are working through an oversupply of new houses after ramping up speculative construction in the years following the COVID pandemic.

To sell that excess inventory, builders nationwide, but particularly in the South and West, became increasingly aggressive, offering price cuts and incentives to move spec homes that depreciate in value the longer they sit unsold. 

According to data released this week by the NAHB, 65% of builders nationwide used sales incentives this month, and 36% cut prices, with price cuts averaging 6%.

New home sales may have increased last year, but First American Deputy Chief Economist Odeta Kushi noted that “incentives are doing some of the heavy lifting” as builders work to sell through excess spec inventory. 

Builders have worked through some of this excess supply, but there is still more work to be done. 

“The pickup in new-home sales has helped chip away at builders’ inventory. Months’ supply fell to its lowest level since summer 2023. Still, supply remains elevated by historical standards. At the current sales pace, there are 7.6 months of new homes available — well above the 5.5-month average we saw from 2015 to 2019. Builders are moving product, but inventory pressures haven’t fully eased,” Kushi said in a statement. 

By the end of 2025, there were 128,000 completed, ready-to-occupy homes available for sale on a non-seasonally adjusted basis, up 8.5% from a year earlier.

“Completed homes accounted for a little more than a quarter of the total inventory, while homes under construction made up 51%,” NAHB’s Nanayakkara-Skillington noted. “The remaining 22% of homes sold in December had not yet started construction at the time the sales contract was signed,”

Builders have also responded to this excess supply of new homes by pulling back on new construction, as housing starts fell 7.3% nationwide last year. The decline, however, was stronger in the South (8.3%) and the West (10.7%). Meanwhile, the Northeast and Midwest were relatively unchanged. 

Moderating mortgage rates may have also contributed to an increase in sales activity at the end of last year. The average 30-year mortgage rate was about 6.6% at the beginning of 2025, but fell gradually by about 500 basis points by the end of the year. 

However, lower mortgage rates only go so far amid affordability constraints and weak consumer confidence. 

Throughout 2025, homebuilders often faced a tough decision: prioritize strong sales numbers, which came with higher incentives and lower margins, or scale back on volume and market share to preserve profitability. 

Homebuilders may not expect a strong demand shift in 2026, but many in the industry are cautiously optimistic and believe the worst may be over. There is some pent-up demand in the market — the real question is, when will it finally be released?

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There’s a version of this market where “buying sales” becomes the default operating system for nearly everyone.

When that happens, the question stops being whether incentives rise. They do. The real question becomes: who has the operational and balance-sheet self-control to decide where to lean in—and where to hold the line—even if it means slower near-term volume.

The even bigger question for each homebuilding enterprise is Who really are you? What are your honest-to-God core skills as an organization? And, based on that, what do you want to do and be in the months ahead?

That’s the practical story in Meritage Homes’ Q4 2025 and full-year 2025 performance: a company with an operations-forward model, a spec-heavy strategy, and a community-by-community cadence that gives it enough control to choose a more balanced pace/price posture—even in a quarter management repeatedly described as unusually tough.

Wolfe Research framed this bluntly, attributing Meritage’s perceived “outperformance” to “a well-managed conference call and a pragmatic near-term pivot, holding the line on discounts rather than chasing volume in a challenging incentive environment, leading to a better-than-feared 1Q26 Gross Margin guide.”

Softer demand, deliberate restraint, and a conversion machine

In prepared remarks, Executive Chairman Steven Hilton described Q4 as “marked by much softer-than-anticipated market conditions as affordability challenges persisted and buyer confidence deteriorated.”

He added that Q4 absorption pace fell to “3.2 net sales per month,” attributing it to “Q4 sales seasonality, a pullback in buyer urgency and a strategic decision to hold the line on incentives.”

That “hold the line” phrase matters because, for Meritage, that’s not an abstraction. Management presented it as an operational choice made in a specific competitive context.

CEO Phillippe Lord said, “As we rolled into Q4, we saw a lot of builders clearing the decks with aged inventory… incentives were going to be elevated in Q4 and [we] intentionally chose… to not chase additional sales and operate at a slightly slower volume.”

With that commitment, Lord is answering the question, ” Who are we? How are we made? What are we good at?”

The data in the earnings release puts the quarter’s slowdown in clear terms: Q4 orders of 3,224 were down 2% year over year; closings of 3,755 were down 7%; home closing revenue fell 12% to $1.4 billion; and diluted EPS declined 49% to $1.20 (or $1.67 adjusted). Home closing gross margin came in at 16.5% GAAP and 19.3% adjusted.

But here’s the operational point: even in that tougher quarter, Meritage’s spec-plus-speed machine kept turning inventory into closings at an extreme conversion rate. Hilton called out “an exceptional backlog conversion rate of 221%.” (Steven Hilton, Executive Chairman) Lord reiterated that “with 63% of Q4 closings also sold during the quarter, our backlog conversion rate was yet another all-time high for the company of 221%.” (Phillippe Lord, CEO)

That’s not a financial statement artifact. That’s a strategic operating posture: keep inventory “nearly completed,” keep cycle times short, and be able to close quickly enough that intra-quarter sales become a consistent supply of deliveries.

Flat orders, and lower revenue, margin, and community count growth

Full-year 2025 results read like an operator fighting a slower demand tape with scale and execution rather than price alone:

• Full-year orders: 14,650, essentially flat year over year
• Closings: 15,026, down 4%
• Home closing revenue: $5.8 billion, down 9%
• Home closing gross margin: 19.7% (GAAP), down 520 bps; 20.8% adjusted
• Net earnings: $453.0 million, down 42%
• Diluted EPS: $6.35 (GAAP), down 41%; $7.05 adjusted

Management’s explanation for keeping orders flat was straightforward: community count growth offset slower absorption. Hilton said full-year sales were “essentially flat compared to the prior year as we grew the ending community count 15% year-over-year to 336 communities, offsetting slower demand.”

Lord put numbers around the operational build-out: “During the quarter, we brought 35 new communities online… For full year 2025, we opened over 160 communities. In addition, we expect another 5% to 10% growth in community count in 2026.”

The underlying trade-off is evident in the release: full-year absorption pace fell 9% while average communities increased 12%. That is the definition of scaling the platform to defend volume while acknowledging that demand per community has softened.

The inventory discipline that separates “spec strategy” from “spec risk”

If housing demand drives builders to offer incentives and liquidate specs, the difference-maker becomes inventory management: how quickly you can reduce starts, work down specs, and keep the system from flooding itself.

Wolfe called out Meritage directly for bucking a pattern they see elsewhere: “MTH is taking real steps to align inventory with demand with Starts declining to 2,700 in 4Q (-24% YoY) versus 3,224 Orders and 3,755 Closings, running in contrast to many Builders still matching Starts to Sales.”

During the call, Lord confirmed the operational step-down:

“In Q4, to align with our current sales pace, we moderated starts, which totaled approximately 2,700 homes. 24% less than last year’s Q4 and 12% lower than Q3.”

And then came the inventory metric that matters when you’re spec-heavy: specs per store. Lord said: “We ended the quarter with approximately 5,800 spec homes, down 17% from approximately 7,000 specs in the prior year… The 17 specs per store this quarter was our lowest level since mid-2023.”

Wolfe captured the same story: “specs per community have declined to 17.4 versus 24.1 a year ago (-28% YoY) while specs per community are at the lowest level since mid-2023.”

But Meritage didn’t present 17 specs per store as a trophy. Lord acknowledged the mix problem:

“We still have about 50% of our specs are nearing finished or finished. We’d like that to be more around  one-third… 1one-third that can move in, in 30 days… one-third that can move in 60 days, and then the other one-third, we’re just starting.”

Lord’s statement amounts to a master class in what operational excellence looks like in a spec strategy: not merely “more specs” or “fewer specs,” but the right balanced stage mix to preserve velocity without excessive finished exposure.

Margin compression, explained the way operators explain it

Meritage didn’t hide the margin mechanics. CFO Hilla Sferruzza laid out the Q4 margin pressures:

“Adjusted home closing gross margin was 400 bps lower in Q4 as compared to prior year due to greater utilization of incentives and discounts, higher lot costs and loss leverage, all of which were partially offset by improved direct costs and shorter cycle times.”

She also gave two operational signals that will matter more as 2026 unfolds:

• Direct costs are trending in the right direction: “During the quarter, we had direct cost savings of nearly 4% per square foot on a year-over-year basis… the benefits will not be visible until later in 2026 as we continue to work through our existing spec inventory that was built earlier in the year.”
• Lot-cost pressure isn’t going away tomorrow: “Our land basis in 2025 included elevated land development costs from work completed over the past several years, which will continue to impact our margins in 2026.”

In other words, the operator’s work is producing savings, but the financial statement will lag because the inventory was built earlier and because the land basis carries a longer tail.

A land-and-overhead reset that’s both defensive and opportunistic

Meritage’s Q4 included a visible “self-help” reset: land deal terminations, impairment charges, and severance costs.

In the earnings release, CEO Phillippe Lord said the company “conducted an in-depth review of our optioned land and elected to terminate certain positions to release capital to top-grade our land portfolio as opportunities become available in the marketplace.”

On the call, he expanded the logic: “The recent slowing demand environment has presented opportunities to enhance our land portfolio in specific submarkets… We observed land deals returning to the market, sometimes in more strategic locations and with more favorable structures.”

CFO Sferruzza quantified the terminations in operational terms:

“In addition to terminating over 3,400 lots… we also recorded $7.8 million in impairments this quarter on owned inventory as we adjusted pricing to local market conditions.”

And Meritage tied that reset directly to overhead recalibration and technology-driven efficiency. Lord said:

“Based on our current view of our overhead this quarter, building on a multiyear technology initiative focused on automation and process efficiencies, we are now able to achieve improved back office productivity aligned with our move-in ready all-spec strategy.”

Buybacks are strategy, not an afterthought

Meritage’s management made share repurchase a central plank of the story, repeatedly framing it as the best use of capital at current valuation.

From the earnings release: “In the near-term, we are accelerating share repurchases… as we believe this represents the most compelling use of capital given the significant undervaluation of our stock.”

On the call, Lord was even more explicit: “When our stock is trading at a significant discount to intrinsic value, the best investment I can make for our shareholders is to buy our existing enterprise at a discount.”

Meritage’s full-year capital return was $416 million, “representing 92% of this year’s total earnings.”

Wolfe tied the repurchase posture to valuation: “the company is returning significant cash to shareholders while trading below Book Value. Management clearly views the company’s shares as undervalued…” (Trevor Allinson, Wolfe Research)

The new signal investors are listening for

Meritage guided Q1 2026 home closing gross margin of 18% to 19% and diluted EPS of $0.87 to $1.13.  But the more important takeaway—because it goes directly to Wolfe’s “hold the line” thesis—was how management characterized margin seasonality and near-term steadiness.

In Q&A, Sferruzza told Zelman’s Alan Ratner:

“For the most part, what we’re seeing right now is holding steady with some hopeful green shoots from the spring selling season.”

That’s the real point of Meritage as a lens into this market: when demand turns inelastic, when incentives keep creeping, and when everybody wants to clear specs, the operators who can control starts, control spec stage mix, and choose where not to chase volume will often be the first to signal whether margin can stabilize without surrendering the business model.

Meritage is telling you, plainly, that Q4 was the quarter they chose restraint—because they believed Q1 inventory returns would be better than Q4 returns. Now they’re guiding 2026 closings and revenue “in line” with 2025, “assuming no changes in market conditions.”

In a market where “every competitor is buying sales,” that “assuming” clause is the whole ballgame.

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After a year of strong results, sales of newly built homes took a major step back last month.

Data released Tuesday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD) shows new-home sales in October clocking in at a seasonally adjusted annual rate of 610,000 — a 17.3% decline compared to September and a 9.4% decline year over year.

The numbers represent the slowest pace of new-home sales since November 2022, when the seasonally adjusted annual rate was 596,000. The post-pandemic low point occurred in July 2022, when the rate fell to 519,000.

The median sale price of a new home hit $437,300, a 4.7% annual increase. Months of supply at the current sales rate was 9.5 in October, up from 7.9 months at this time last year.

Economists point to the October surge in mortgage rates and the rise in existing-home inventory as some of the factors behind the disappointing results for new-home sales.

​​”Some of the dip in new home sales in October is partially explained by political uncertainty,” Bright MLS chief economist Lisa Sturtevant said in a statement. “Following the election, home builders appear to be more confident as the home builder confidence index has risen for two months in a row.”

Existing-home inventory in October rose 19.1%, giving home shoppers considerably more options as an alternative to a new home. This could put a ceiling on new-home sales in the near term, although the ability to offer mortgage rate buydowns still gives builders an advantage over many existing-home sellers.

Regionally speaking, new-home sales have flipped directions. The South had been posting strong gains, but sales in October fell to a seasonally adjusted annual rate of 339,000, down 27.7% month over month and 19.7% year over year. It’s the slowest rate of sales in the South since April 2020 at the onset of the COVID-19 pandemic.

Conversely, the Northeast tallied strong gains in October after months of sagging numbers. Its October pace came in at 46,000, up 53.3% from the prior month and 35.3% above year-ago levels.

The sales pace in the Midwest rose 1.4% compared to September and 15.9% annually, while the West slowed by 9% month over month and 1.3% year over year.

“Builders continue to grapple with supply-side challenges and ‘higher-for-longer than we expected’ mortgage rates, which are a major headwind for builders and potential home buyers alike,” First American deputy chief economist Odeta Kushi said in a statement. “Despite the challenges, the new-home market will likely continue to outperform the existing-home market over the near term because, unlike existing homeowners, builders are not rate locked-in.”

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New-home sales reached a seasonally adjusted annual rate of 661,000 in January, according to data published Monday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD). 

While this figure represents a 1.5% increase from the revised December rate of 651,000, it falls slightly below market expectations. It also marked a 1.8% rise from the January 2023 pace of 649,000 units sold.

The uptick in new-home sales underscores the persistent strength of demand in the housing market despite the challenges posed by winter weather. Mortgage rates rose last week to their highest level since mid-December, but homebuilders continue to  navigate this landscape by offering interest rate buydowns and other concessions to buyers.

Builder confidence, as measured by a survey from the National Association of Home Builders (NAHB), improved to a reading of 48 in February. Additionally, mortgage applications for new homes surged in January as a lack of existing homes for sale continued to fuel the demand for new construction.

At the end of January, there were 456,000 new homes available for sale, marking a 3.9% year-over-year increase. New homes constitute slightly more than 30% of the total active inventory in the market. At the current sales pace, there is an 8.3-month supply of new single-family homes, according to census and HUD data. 

The median sale price for a new home rose to $420,700 in January, marking a 1.8% increase from December but a 2.6% decrease compared to a year earlier. New home prices have declined for five months in a row on a yearly basis. 

Nevertheless, new construction continues to command a premium over existing homes, with January’s median price for a new home standing 11% higher than that of an existing home.

Against the backdrop of these market dynamics, housing affordability and accessibility have emerged as central themes in state governance. 

More than 20 state governors spoke about housing affordability and accessibility issues with their legislatures during their annual state of the state speeches in an attempt to encourage growth and development, according to a report from The Washington Post. 

The U.S. faces a significant housing shortage, with estimates ranging from 1.7 million to 7.3 million homes, depending on the source, the Post reported. Many  governors have called not only for more spending but also for fewer regulatory barriers to new private-sector construction.

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Mortgage demand for new homes jumped in October as the inventory for existing homes remained depleted.

Mortgage applications for new-home purchases rose 39.7% in October on a year-over-year basis and were up 6% from the previous month, according to the Mortgage Bankers Association (MBA) Builder Application Survey for October. 

“Home builders have been able to temper this high-rate environment by offering buyers rate buydowns and other incentives,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. “We estimate that the pace of home sales increased for the third straight month to a 715,000-unit annual pace — the strongest sales month since May 2023.”

FHA applications reached highest share of new-home applications since 2013

In October, FHA applications represented 26.3% of all new-home purchase applications as homebuyers turned to new construction for more housing options. This is the highest share of FHA new-home purchase applications in a decade.

Conventional loans made up 63.6% of new-home mortgage applications while VA loans comprised 9.8% of new-home loan applications in October.

The average loan size for new homes was $390,225 in October, down from $397,550 in September

According to MBA estimates, new, single-family home sales were at a seasonally adjusted annual rate of 715,000 units in October. That’s up 12.8% from the September pace of 634,000 units. On an unadjusted basis, MBA estimates that there were 55,000 new-home sales in October 2023, up 7.8% from 51,000 sales in September.

However, higher mortgage rates sank builder confidence again in October, which fell to 40. In September, the sales pace of new homes climbed 12.3% compared to August, reaching a seasonally adjusted annual rate of 759,000. The data for new home sales is scheduled for Nov. 27.

MBA’s survey tracks new-home mortgage application volume from mortgage subsidiaries of homebuilders across the country. 

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