When the biggest of the big U.S. homebuilders wobbles, what happens to practically everybody else in the sector?

D.R. Horton’s Q4 earnings call revealed that even America’s No. 1 homebuilder by volume has grappled with maintaining its plan on operating margins, as it has employed more incentives and retreated on pricing. 

The call touched on another reality — large public builders like D.R. Horton continue to leverage their scale and operational strength to wrest market share from private builders, particularly in secondary markets, and squeeze trades and supply channel partners into pricing and profit 'haircuts' even as they absorb gross margin compression into their own quarterly business performance. 

D.R. Horton’s October acquisition of Greenville, SC-based SK Builders, which happened just after the fiscal quarter ended, illustrated this trend. 

More M&A is more than likely.

Gaining Share in Secondary Markets

On the call, executives discussed gaining market share in secondary markets such as Greenville and left the door open to similar acquisitions in the future. 

Executive VP and COO Michael Murray lauded the acquisition as benefiting D.R. Horton’s positioning in Greenville. With the acquisition, D.R. Horton scooped up 150 houses in inventory, another 400 lots on the ground, two-thirds of which are sold, and another 1,300 lots in the pipeline. 

We continue to look at those tuck-in opportunities to accelerate the pace of delivery of homes into those markets across the country. We tend to operate with our capital structure, cost structure at a higher pace than some of the smaller builders do with some of the limitations they have on capital and cost,” Murray said. 

D.R. Horton’s scale, capital access, and its ability to negotiate favorable labor and material costs amount to locked-in market and submarket advantages that small private builders can’t match. Murray explained that the company will continue to leverage this strength as it seeks local acquisitions to grow market share. 

It’s accretive to our platform. We look to see people that are really good at the small local homebuilding are also generally very good at the local entitlement and development operations," Murray said, referring to such acquisitions as a long-term win-win scenario for both the seller and the D.R. Horton.

D.R. Horton’s Gross Margins Fall Short of Expectations

D.R. Horton’s gross profit margin in Q4 was 20%, 40 basis points below the low end of its prior guidance for the quarter. Higher-than-normal litigation costs were partially responsible, but the lion’s share of the blame lies with increased incentives. 

The builder doesn’t report a specific incentive figure, but executives indicated that it is in the high single digits, likely similar to Pulte’s 8.7% and Tri Pointe Homes’ 8.2%. Mortgage buydowns were the incentive of choice, and the average mortgage rate offered was 3.99%. 

President and CEO Paul Romanowski said that D.R. Horton will do what’s necessary to sell more inventory, even if that means wavering more on incentives if necessary. The company is looking to strike a balance between pace and price. 

If we need to step down some more to drop the monthly payment and open up the absorptions that we're looking for at a community level, to drive the returns that we want, then we'll continue to do that,” Romanowski said. 

D.R. Horton sees its current 20% gross profit margin as healthy, even though it has fallen hard from its peak. Private builders may have a hard time matching these incentives while maintaining a healthy profit margin, yet another reason why the regional private operators are struggling to compete with the D.R. Hortons and Lennars of the world. 

Leveraging Favorable Contracts to Maintain Margins

D.R. Horton expects a net decline in average sales price in fiscal 2026, as well as higher lot costs that could rise by at least mid-single digits. However, the builder is aiming to maintain its margins primarily by squeezing its construction costs lower, even lower than the 1% year-over-year direct costs it achieved in 2025. Lower litigation costs will also help. 

When asked how much construction costs would have to go down next year to maintain margins, Romanowski said this:

I think you need to see that somewhere in the 3% to 5% range, and we'll see how that comes in over the year, but I've certainly seen our vendors interested in the starts pace increasing as are we.”

D.R. Horton intentionally reduced its starts last quarter as it aims to get its inventory back in line with demand. However, the builder plans to increase its starts beginning in December and heading into the spring. Trevor Allison of Wolf Research noted that this strategy could help the builder negotiate better contracts with its vendors. 

It appears DHI will be increasing starts at a time when many builders are slowing near-term, potentially creating incremental leverage for the company in negotiations with its trades,” Allison noted. 

The nation’s largest homebuilder closed 23,368 homes during Q4 2025, relatively flat with its prior quarter. This scale gives D.R. Horton a strong negotiating lever with vendors, construction crews, and land sellers that private builders have a tough time matching. 

Geographic Weaknesses and Strengths

Romanowski described Texas as “choppy.” While the state has some bright spots, many submarkets still have an elevated inventory level and require heavy incentives. He also pointed to Florida, particularly Jacksonville and the southwestern portion of the state, as having similar issues. California has also been a struggle. 

The Midwest and Mid-Atlantic are more stable, even though Romanowski would have expected to see a more substantial bump in buyer activity from moderating mortgage rates. 

The Road Ahead for Private Builders

NAHB reported that the top ten builders accounted for a record 44.7% of all new single-family home closings in 2024, up from 42.% the year prior. This share could widen in the years ahead, with the likes of D.R. Horton looking to acquire more regional private builders to increase market share. 

The top 10 builders accounted for a much larger 79.3% of new home closings across the top 50 new-home markets nationwide, reaching as high as 97.8% in Cincinnati. 

Private builders that compete with large publics such as D.R. Horton, Lennar, or Pulte, especially in the entry-level and move-up segments, will have to focus obsessively on operational excellence and differentiating factors to set themselves apart. 

D.R. Horton can leverage its scale to negotiate favorable contracts with vendors, construction crews, and land sellers. Private builders should work hard to establish close, personal relationships with such partners, as well as local community policy officials, planners, and land entitlement agencies and boards, to remain competitive. 

Public builders like Horton and Lennar have the scale, access to capital, and market share that enable them to endure difficult market conditions and outcompete smaller competitors. Private builders face a stark choice — differentiate themselves and leverage close partnerships to cut costs, or risk the market further leaning in favor of the top 10 operators nationally.