D.R. Horton (DHI) Q4 2026 earnings review
D.R. Horton earns less per home, but its cash flow holds
Rising mortgage rates cut the number of buyers at D.R. Horton, and the homes it did sell earned less. Chief executive Paul Romanowski said the profit on each home came in below the company's expectations as the market worsened through the quarter. Orders fell 7% and the home sales margin slipped to 19.5%. The plan for next year has revenue about 6% lower.
| Revenue | $9.37 billion −3% from a year ago |
|---|---|
| Net sales orders | 18,619 homes −7% from a year ago |
| Profit margin on home sales | 19.5% 20.7% last quarter; the company had planned 20.5–21.0% |
| Fiscal 2027 revenue outlook | $30–32 billion middle of the range: about 6% below this year |
⚖️ Verdict: 🔴 Bearish
The story got worse because demand weakened and building costs turned up, so the margin has no offset left and next year's plan assumes no relief. The good news: the cash arrived. D.R. Horton generated $2.6 billion in the quarter, funded a bigger buyback than it had planned, and brought its debt ratio back near target.
The question now is whether spring buyers return at today's mortgage rates. If they do, the builder holds its margin near 18% and keeps gaining share; if not, it cuts prices or home starts again. Orders reported in January give the first answer.
🐂 Bull Case
Fourth-Quarter Cash Paid for the Buyback
Three months ago D.R. Horton had spent more on share repurchases than it had generated in cash, and its debt had risen to 23% of capital against a long-term target of about 20%. Finance chief Bill Wheat said then that the full-year cash target of at least $3 billion still looked reachable.
The fourth quarter delivered it. By our math, operations produced $2.6 billion of cash in the three months, taking the year to $3.5 billion. That funded repurchases of $1.4 billion, and debt fell back to 20.8% of capital.
The cash came from the balance sheet rather than from profit, because the builder cut starts 45% from June and let its stock of homes run off, and because it now buys seven of every ten lots from Forestar or other developers. Next year's plan repeats the pattern: about $3.5 billion of cash against $3.0 billion of repurchases, so buybacks sit inside the cash flow rather than ahead of it. The method has a limit, though, because cash released from inventory is also volume the company is not building.
What to watch: operating cash flow in the December quarter, due January 19, when inventory normally builds ahead of spring. A positive figure would mean the leaner inventory model produces cash in the slow season too, not only when starts are cut.
Fewer Shares and a Higher Dividend Cushion Earnings
D.R. Horton returns most of its cash to shareholders, mainly by buying back its own shares. Finance chief Bill Wheat said next year's repurchases 'provide support to our future earnings per share', which is the plain way of saying profit per share will fall less than profit.
This year the builder retired 8% of its shares, and the board raised the quarterly dividend to $0.50. The result shows in the fourth quarter: net income fell 18%, but profit per share fell 12%.
- Shares outstanding: 271.4 million, down 8% from a year ago
- Dividend: $0.50 a quarter, up 11%; the thirteenth straight yearly increase
- Plan for next year: about $3.0 billion of repurchases and $500 million of dividends
This matters because next year's plan has profit falling again, so the share count is the one line management controls that lifts earnings per share. But the repurchase budget is smaller than this year's $3.6 billion, so the cushion gets thinner.
What to watch: shares bought in the December quarter, reported in January. Wheat said repurchases should run at a fairly even pace this year, so a quarter well below $750 million would mean cash is being held back.
🐻 Bear Case
Buyers Pulled Back as Mortgage Rates Rose
D.R. Horton sells mainly to first-time buyers, who need a mortgage, so its sales follow mortgage rates closely. Executive chairman David Auld said rising rates, affordability and 'cautious consumer sentiment continued to pressure new home demand' during the quarter.
Net orders fell 7% to 18,619 homes, the first decline in a year. Buyers who had signed also walked away more often, so the cancellation rate climbed to 23% from 20%. Management said demand weakened as the quarter went on and October has run at September's pace.
- Orders by region: Northwest down 18%, South Central down 15%, Southwest down 14%; North up 1%
- Backlog: 11,714 homes, up 9% from a year ago but down 27% from June
- Completed unsold homes: 8,800, up from 7,600 in June
This matters because the builder added 10% more selling communities to carry volume through a weak market, and that offset has stopped working: by our math each community sold about 15% fewer homes than a year ago. Romanowski said buyers are still coming into the sales offices but hesitate, and on mortgage rates, 'anticipating it to go down isn't prudent at all'.
What to watch: net orders in the December quarter, reported January 19. Hansen said the plan can absorb slightly lower sales per community than this year; an order decline steeper than this quarter's 7% would mean the plan is already behind.
Building Costs Turn Up While Home Prices Fall
For a year D.R. Horton protected its profit on each home by paying less for lumber, labour and other building costs while it cut prices and added incentives. Management had said those savings were approaching their limit, and this quarter they ran out.
The margin on home sales fell to 19.5% from 20.7% in June, which Romanowski said was 'below our expectations'. Hansen said a weaker market 'limited our ability to offset higher costs with pricing', costing 0.8 percentage points, and higher reserves for two lawsuits took the rest.
- Per square foot, from June: home prices up 1%, building costs up 1%, lot costs up 4%
- Per square foot, full year: home prices down 2%, building costs down 4%, lot costs up 6%
- Litigation and warranty: 0.8 points of revenue, against a normal 0.4–0.5
This matters because the costs that remain are the hard kind. Lot prices are fixed when land is bought a year or two ahead, and Murray said the land market is slow to reset; building costs should be flat to slightly up next quarter; and Hansen expects incentives to stay high all year. That leaves price, which is already moving: the average order fell 2% to $356,600.
What to watch: the home sales margin in the December quarter against the 18.0–18.5% range. A result inside it would mean the extra incentives of the last three months were enough to sell the homes started in the summer.
Overhead Grows While Sales per Community Shrink
D.R. Horton keeps opening markets and communities, each with offices, sales staff and advertising. Finance chief Bill Wheat said overhead will fall as a share of revenue 'when revenue growth resumes, and our community absorption rate stabilize'.
Neither has happened. Average selling communities rose 10% from a year ago while orders fell 7%, so by our math each community sold about 15% fewer homes. Overhead rose 7% to $729 million and reached 8.7% of homebuilding revenue.
This matters because the first-quarter plan puts pre-tax profit at 7–8% of revenue, from 11.6% a year earlier, and Wheat said overhead spread across fewer and cheaper homes is a main reason. Management calls the platform worth keeping for a recovery, but each new community lowers the average until one arrives.
What to watch: community-count growth reported in January. The company has pointed toward mid-single-digit growth; a reading still near 10% would mean it keeps adding overhead into falling demand.
Nine Rental Projects Written Down as Rates Rise
Besides houses, D.R. Horton builds apartment complexes and rental-home communities, leases them up and sells them to investors who borrow to pay. When interest rates rise, those investors pay less. The segment held $2.6 billion of such property at year-end.
This quarter the builder wrote down nine completed apartment projects by $91.4 million, and the segment reported a pre-tax loss. Romanowski said the charges 'primarily reflect our lower sales price expectations due to the recent increases in interest rates'.
This matters because management expects rental margins to fall further next year, and the segment is one reason the full-year plan carries wider ranges than usual. Rental revenue was already down 20% from a year ago, and the apartment side now sells into the same rates that are hurting home sales.
What to watch: rental pre-tax profit in the December quarter. A second loss would mean the write-down did not take prices low enough for buyers at today's rates.
👓 Other Themes
Smaller Homes and a Wall-Panel Pilot in Phoenix
D.R. Horton is shrinking the house to hold the monthly payment: average size is down 4% over five years. Attached homes such as townhouses and duplexes are now 16% of closings, from 9% in fiscal 2022. Management also confirmed a pilot in Phoenix with a robotics company that builds wall panels off-site, a possible route to lower building costs, with no numbers yet.
Forestar's Executive Chairman Don Tomnitz Retires
Romanowski closed the call by noting that Don Tomnitz, executive chairman of Forestar, the lot developer D.R. Horton controls with a 62% stake, has announced his retirement after 40 years across the two companies and nine years at Forestar. No successor was named on the call.
💲 Other KPIs
Falling for a second year: profit from building homes was 16.6% of the average inventory that produced it, down from 20.1% a year ago. Return on inventory is the measure management quotes first, and it has slipped every quarter since September 2025. Return on equity followed the same path, to 12.2% from 14.6%.
Forestar, the lot developer D.R. Horton controls, sold 2% more lots but earned 13% less revenue. Pre-tax profit fell 31% to $78.6 million. By our math, eight of every ten dollars came from D.R. Horton itself, which bought $465 million of finished lots from it in the quarter. For next year Forestar expects 12,000–13,000 lots and $1.4–1.5 billion of revenue, below this year's 13,545 lots.
The mortgage and title arm earned 3% more than a year ago on revenue that was flat at $219 million. Its margin was 35.7%. It financed 80% of the quarter's closings, and 58% of those loans were government-backed FHA or VA loans, down from 64% a year ago, as more buyers used conventional loans.
🔮 Guidance
New. The plan has revenue about 6% lower than this year at the middle of the range, and Hansen said the range is wider than usual because of the uncertain market. By our math, after the first-quarter plan, the remaining nine months come in about 5% below last year's. Management said the gap between fewer homes and much lower revenue is a lower average price, which it does not forecast rising until it sees it.
New. Flat to down: the middle of the range is 3% below this year's 84,202. Hansen said the plan does not need sales per community to improve, because the community count is still rising, and it can absorb slightly lower sales per community than this year. In each of the last two years the company lowered its initial full-year plan as the year went on.
New. The middle of the range is 11% below last year's first quarter, which by our math is the steepest decline of the year in the plan. December is always the slowest quarter, Hansen said, and this one starts with a backlog 27% smaller than in June.
New. About 10% fewer closings than last year's first quarter at the middle of the range. By our math, that still leaves 65,500 homes for the final nine months, only 1% fewer than this year, so the plan assumes the spring recovers most of the lost ground.
New. The plan has the margin on each home 1.0–1.5 points below this quarter's 19.5%, and about 2 points below last year's first quarter. Hansen named a lower average price and higher incentive costs at current mortgage rates. Management added that building costs should be flat to slightly up and lot costs up again. No full-year margin was given.
New. Pre-tax profit would fall to 7–8% of revenue from 10.8% this quarter. The drop is larger than the home margin's because overhead is spread over fewer and cheaper homes and rental profits will be lower, Wheat said.
New. The same $3.5 billion the company produced this year, even though revenue and profit are planned lower. Management expects to pull cash out of the balance sheet: fewer homes in inventory because of faster build times, and a rental property balance at or below today's $2.6 billion.
New. Below the $3.6 billion spent this year and below the cash flow the company expects, which was not the case in the past two years. Wheat said the pace should be fairly even through the year, with room to be opportunistic. The remaining authorization is $4.7 billion.
New. About the same as this year's $513 million even with the quarterly payment raised 11%, because the share count is 8% lower. The new rate is $0.50 a share, the thirteenth straight yearly increase.
New. Half a point above this year's 24.8%, a small extra drag on profit per share.
❓ Key Questions
What are incentives as a share of home revenue?
Management again called incentives elevated and above the historical norm without a number. Every margin question routes through this figure, and the first-quarter plan cuts the margin by over a point on it.
How much will the two lawsuit settlements cost?
Reserves were raised for two cases now expected to settle above earlier estimates. The 10-K, due in about three weeks, should show the reserve and whether more cases are heading the same way.
Why did Northwest and South Central orders fall fastest?
Orders dropped 18% and 15% in those regions while the North grew. Management said smaller markets held up better than large ones, but regional profit margins were not in the release.
What does D.R. Horton pay Forestar per lot?
Eight of ten Forestar dollars this quarter came from its parent. Without the transfer price, Forestar's 13.5% margin cannot be compared with lots bought from third parties.
How much inventory can the balance sheet still release?
The $3.5 billion cash plan rests on fewer homes in inventory and a smaller rental balance. Management did not say what inventory level or home count it assumes at the end of fiscal 2027.