Private Builders Trade Margin For Market Positioning Gains

Deja vu all over again. Fifteen years ago, private homebuilders last faced an operating and selling environment this unforgiving.

Back then, the housing crash was a single, seismic event. Today, it’s a rolling, uneven grind. Interest rates swing, but rarely in ways that spark broad buyer urgency. Costs behave more like a stubborn ceiling than a cyclical curve. Consumer confidence stays fragile. And for many private operators, their traditional lenders are stepping back from the table just when capital is most needed.

The result is a moment many private homebuilders are making a hard choice: protect margins and risk stalling their operation, or accept lean or barely-perceptible single-digit profits in exchange for keeping pace, moving inventory, and positioning for the moment when the market’s momentum returns.

Of course, a few private homebuilders – nimble and agile enough to have pivoted on product and customer segments the minute that rising interest rates imperiled interest-rate-sensitive and cost-sensitive homebuyers, some 18 months ago – reprogrammed products and neighborhoods for more discretionary buyers, not only not deterred by prices and rates, but unfazed by a trade-off on their contingent existing home sale for an opportunity to buy a brand new "forever home."

Face it, those prescient, nimble, and agile homebuilders are in the minority. That's partly because of the kind of depth and patience their capital partners would need to give them that level of product and land-position maneuverability.

Most homebuilders are stuck with their current strategy, and must make it work or capitulate.

One owner of a multi-market, privately held homebuilding enterprise — focused on the more affordable end of the price spectrum — puts it bluntly:

I don’t want to sit around and flounder and make no money. I’d rather use this time to get some good land deals that can be had now, improve my operations, and build a national model that — while it’s also making no money now — is positioned to explode when the market picks back up. We’ve got our market share and volumes ready to accelerate when that momentum shift comes. Now's the time to build the machine.”

That thinking — a conscious trade of “pace over profit” — is visible across the data in Wolfe Research’s July 2025 Private Builder Survey.

A Market That Rewards Activity, Not Efficiency

Wolfe’s monthly survey shows that private builders’ new orders in July rose by +3.2% month-over-month, a sharp contrast to the typical mid-single-digit decline for the month. In historical context, July’s results outperformed the survey’s own four-year average July drop of -8.2%.

Those gains didn’t come from sudden market strength. Instead, they came from an increase in incentives, lower asking prices, and operational flexibility that larger publics often, with a few exceptions, avoid to protect reported gross margins. Average incentives in the survey rose 40 basis points to 4.4% of order value, while average selling prices fell 130 basis points month-over-month.

That pricing reset is, in some ways, the private builder’s competitive advantage. Smaller community sizes allow faster turnover at market-clearing prices. And as Wolfe analyst Trevor Allinson notes, that may help restore buyer confidence by easing fears of buying into a declining-value market.

Still, those orders are being bought at the expense of profitability. July’s gross margins fell an average of 80 basis points from June, with 80% of builders in the survey reporting month-over-month margin declines.

Why 'Pace Over Profit' Makes Sense Now

The builders leaning into this strategy aren’t doing so because they enjoy low margins. They do it because:

Fixed Costs Don’t Wait. Payroll, site supervision, warranty, insurance, and other recurring overheads continue regardless of the number of closings in a given month. Slowing sales without cutting costs deeply bleeds cash faster.
Market Presence Matters. Even if sales are low, maintaining visibility in the market — through active communities, consistent advertising, and a prominent product — keeps the builder in front of buyers when momentum shifts.
Land Opportunities Are Emerging. As some competitors and lot suppliers pull back, motivated sellers are more willing to negotiate. Acquiring land now, even at reduced near-term profitability, can set up a more competitive cost basis in future cycles.
Operational Gains Take Time. Process improvements, trade alignment, and system upgrades are easier to test and refine when volumes are manageable. Builders who wait for the upturn to start these changes may find themselves scrambling and missing their moment.

Financing: The Shift from Local Banks to Private Debt

One structural shift making the current moment different from 2009–2011 is the behavior of traditional lending sources. Many local and regional banks — historically the backbone of acquisition, development, and construction (AD&C) financing for private builders — are shrinking or eliminating these loan programs.

Regulatory bank examiners, under tighter risk-reserve oversight, are pressing banks to shed perceived high-risk exposures. Renewals of established builder credit lines are being pulled or reduced. That’s forcing even long-standing customers to look elsewhere.

Private capital has stepped into the gap. Specialty lenders, non-bank funds, and high-net-worth investor pools are actively courting homebuilders, often with terms that reflect the competitive landscape: modest reductions in origination fees, lower starting interest rates, and more flexible underwriting on pre-sales or absorption tests.

The trade-off is that private debt can come with shorter maturities, closer monitoring, and sometimes profit-participation clauses. But for builders committed to the “pace over profit” approach, these terms can be acceptable, especially if the alternative is having no financing at all.

The Good, the Bad, and the Fragile

The Good:

Order Momentum in a Soft Market. More than 60% of surveyed builders saw month-over-month order growth in July, compared with fewer than 15% in June.
Community Count Growth. Private builders’ community counts were up 2.2% month-over-month and 17.2% year-over-year. This reflects a backlog of previously planned communities finally opening.

The Bad:

Margins Under Pressure. 80% reported sequential gross margin declines. Public builders are seeing the same trend, but private builders often have less cushion.
No Lift from Brief Rate Drops. 64% of respondents saw no improvement in traffic or orders during brief rate dips, suggesting affordability is only part of the demand challenge.

The Fragile:

Consumer Confidence as a Gatekeeper. Builders said macroeconomic uncertainty (70%) and fear of future price declines (50%) are dampening demand. These are psychological hurdles, not just financial ones, and they can persist even if rates fall.
Lot Cost Outlook Split. 55% of builders expect no material lot cost inflation in 2026, while 45% anticipate headwinds of 100–600 basis points.

Building the Machine Now

For the operators committed to using this period to “build the machine,” the work falls into three broad areas:

Cost Discipline Without Starvation.
“Sharpening the pencil” is not simply slashing line items. It’s about questioning the necessity, timing, and ROI of every dollar spent, while still funding the initiatives that will pay off when volume returns. Builders are renegotiating trade contracts, aligning start schedules more tightly with closings, and standardizing options to reduce variance.
Leverage with Partners.
The slowdown shifts bargaining power. Builders able to guarantee consistent, if modest, work can extract better terms from trades and suppliers eager to keep crews and lines busy. This extends to land partners, where shared-risk takedown schedules and option structures can improve cash flow.
Sales and Marketing Adaptation.
Incentives are now part of the baseline, but how they’re deployed matters. Successful builders match concessions to buyer psychology: rate buydowns for payment-sensitive buyers, upgrade packages for move-up prospects, or closing-cost help for first-timers. Marketing budgets are being aimed more precisely at active buyer segments rather than general brand spend.

The Risks of Waiting for the Turn

The counter-argument to “pace over profit” is simple: Why burn effort and capital for little or no return? Why not hunker down, protect balance sheet strength, and wait for the market to improve?

The risk is missing the inflection point. Demand often recovers unevenly — first in certain price bands or submarkets, then more broadly. Builders who have kept communities active, land pipelines primed, and operations tuned are positioned to expand quickly into those first pockets of demand. Those who waited may find themselves without the necessary resources, including lots, trade relationships, or internal capacity, to scale up without long delays.

No Clear Timeline, But Clear Choices

No one in the Wolfe survey suggested they know when momentum will return. The responses instead reflect an acceptance that the second half of 2025 — and possibly much of 2026 — will be defined by this grind: incentives up, prices flat or down, margins thin, and buyer hesitancy high.

For private homebuilders, the choice is less about predicting the turn than about deciding how to endure it and get stronger through it. That resiliency is not an abstract idea. It’s the sum of:

The lots you’ve secured at today’s terms.
The efficiencies you’ve embedded in your build cycle.
The relationships you’ve deepened with trades, suppliers, and lenders.
The market presence you’ve maintained in the eyes of buyers.

In that context, “pace over profit” is not about ignoring the bottom line. It’s about redefining profit for this phase of the cycle: trading near-term margin for long-term position.