Homebuilders had a terrible, horrible, no good, very bad quarter

Homebuilders are having a rough time lately—just look at their Q4 earnings reports.

Lennar announced earlier this week that the company delivered 23,034 homes in the fourth quarter ending November 30, up 4% from the same quarter last year. Meanwhile, orders for new homes rose 18% year over year to 20,018.

That’s the good news. Here’s the bad: The company missed earnings and revenue expectations because it tossed those shiny new homes into the bargain bin. Lennar slashed its average home price by 10% year over year from $430,000 to $386,000, whittling gross margins below expectations to 17%. For the current quarter from December through February, the builder is bracing for prices to fall to between $365,000 and $375,000, and for margins to contract to between 15% and 16%.

Shares have fallen 9.56% over the last five days.

Although cheaper homes may bring some relief to buyers, for homebuilders it triggers an existential crisis. “If builders are unable to achieve sufficient returns, they may be forced to slow or halt construction,” CEO Stuart Miller warned on the earnings call Wednesday. That’s not good, given the US is already stuck in a housing supply shortage of 4 to 7 million missing homes.

Homebuilder heartache

Four in ten builders resorted to price cuts in December, according to the National Association of Home Builders (NAHB). But these deals have not always been good enough to entice buyers to bite.

In its earnings announcement late yesterday, KB Homes trimmed its prices to $465,600 in Q4—quite a haircut from $501,000 last year. Even so, sales slumped from 3,978 to 3,619, and orders fell from 2,688 to 2,414. In 2026, KB hopes to build 11,000 to 12,500 homes, slightly below analyst estimates. Shares of the homebuilder tumbled 8.57% today.

The only builder that seems to be doing okay-ish lately is Toll Brothers, which delivered 3,443 houses in Q4, with another 10,300 to 10,700 in the pipeline for fiscal 2026, on par with Wall Street projections. Blame it on the K-shaped economy: Toll Brothers caters to wealthier clientele who can stomach average prices of $990,000, more than double the usual cost of a house.

While KB Home is down 12.71% this year, and Lennar has fallen 18.22% in 2025, Toll Brothers is up 10.99% YTD.

A glimmer of good news: The NAHB reported that builder confidence inched up one point to 39 in December. “Builders report that future sales expectations have been above the key breakeven level for the past three months,” said NAHB Chief Economist Robert Dietz. Plus, “the recent easing of monetary policy should help builder loan conditions at the start of 2026.”

In other words, the new year could bring better conditions that will help builders keep on building.—JD