M/I Homes’ Конференция по итогам 4 квартала 2025 года this week peeled back details on how one of the nation’s top-20 homebuilding enterprises will lean into a contrarian, spec-heavy strategy. Based on the firm’s geographical footprint, product set and construction operational efficiencies, M/I executives are betting a measured spec strategy will pay dividends as homebuilding’s spring selling season kicks into gear in a few weeks.
While competitors have shifted away from spec homes, the Ohio-based homebuilder is relying on this blueprint to maintain a positive sales pace, with greater pricing flexibility, amid weak demand and affordability constraints.
As much as 75% of M/I Homes’ sales come from specs. This helped maintain a positive sales pace and operational efficiency, but the company’s gross profit margin has declined, falling from 24.6% in Q4 2024 to 18.1% last quarter.
Executives conceded that generous incentives, especially mortgage rate buydowns, are necessary to move this spec inventory.
Still, Chairman, President & CEO Robert Schottenstein affirmed his commitment to this strategy, particularly with the spring selling season nearing.
“I think we feel really good about where we are, not to be silly. I mean, if we didn’t, we’d change. We want to be very aggressive in making certain that we have the standing product in the field, the inventory, so that we can take advantage of what hopefully is a decent selling environment over the next three to four or five months. So I think we feel our strategy is the right strategy,” he said during the earnings call.
M/I Homes isn’t the only public builder following this blueprint. Овнанские предприятия, после posting a net loss last quarter, decided to stick with a spec-heavy approach. On the other end of the spectrum, КБ Главная is aggressively working to reduce specs to only 30% of sales, with the goal that built-to-order homes will soon account for the remaining 70%.
Other builders, such as Beazer Homes, Дома Смита Дугласа and others, hope to reduce their spec count, despite acknowledging the difficulties of achieving that goal in the near term.
Cautiously maintaining growth and pace
Phillip Creek, Executive Vice President & CFO, said that while a spec-heavy approach is central to M/I Home’s strategy over the quarters ahead, the executive team has increased vigilance and caution.
“Now, execution really matters. We’re trying to be careful not to put too much inventory in finished specs,” Creek said. “Our hopes and plans are that we hope to close a few more houses this year than last year. We have more stores. But again, we’re staying focused. You know, we try to run a conservative business. We’re not trying to put inventory out there too far ahead of ourselves.”
The builder’s goal is to maintain a sales pace of roughly three homes per community per month. Sustaining that pace amid current market conditions often requires generous incentives and mortgage rate buydowns. According to executives, achieving a sub-five mortgage rate is key to closing deals.
This spec-heavy approach could maintain a positive sales pace and growth trajectory, but could also weigh on margins over the year.
“Margins are likely to remain under pressure, but it’s not clear to me at this point that the pressure in ’26 will be as much as it was in ’25. So hopefully, things are starting to level off a bit. Again, we’ll know when we know,” Schottenstein said.
Schottenstein said most of his divisions saw a slight improvement in demand last quarter compared with the year prior. For this reason, he remains optimistic.
“Just putting things in context, we’ve all seen a whole lot worse. And you know, I think that I’m optimistic about the first four or five months of this year in terms of demand and the selling season,” he said.
Geographic breakdown
M/I Homes operates in 10 states throughout the Midwest and the Southeast, and new contracts in Q4 increased in both regions last quarter. Schottenstein specifically pointed to Columbus, Dallas, Chicago, Orlando and Minneapolis as strong markets, and Creek added that Charlotte and Raleigh have also performed well.
In Florida, Orlando has been the best market. In Texas, Dallas and Houston performed well. Executives identified San Antonio and Austin as areas of concern for the business. While they didn’t elaborate on the poor performance, home prices in Austin fell by roughly 5.5% last year, the biggest drop of any large metro area in the nation.
During Q4, M/I Homes posted $51 million in impairments, inlcuding $40 million in inventory and $11 million in warranty, primarily from entry-level communities with an average selling price of below $375,000. Most of these communities were located in the San Antonio and Austin markets.
“You always have a couple of problem subdivisions,” Creek said. “When we’re not getting an acceptable pace over a certain period of time, we make the business decision, oftentimes to lower the price.”
How M/I Homes determines a community’s product mix
When asked how M/I Homes makes decisions on a community’s product mix, including models, home size, and cost type, Schottenstein provided insights.
Zoning ultimately determines what can be built in a community, but there is some room to maneuver within these zoning parameters. Once these parameters are determined, there is an internal debate to decide the strategy for each individual community.
“The debate occurs within the division. Sometimes it springs all the way up to corporate conversations about what are we going to do with that if we get that deal done and that becomes a new store for us? What is that store going to look like? What are we going to merchandise in that store? Who is the buyer? And, you know, that’s a lot more art than science,” he said.
It’s common for plans to change as market conditions evolve. For example, communities that were initially envisioned with larger homes may later shift toward smaller houses. M/I Homes may maintain the same density while adjusting lot sizes to reflect buyer or pricing demand. This type of recalibration is a normal process.
Every land deal undergoes rigorous corporate-level approval. The corporate land team reviews each of these deals, and larger projects may undergo multiple evaluations; lessons learned in one market are often applied to other divisions.
Ключевые выводы
M/I Homes posted revenues of $1.15 billion last quarter, narrowly falling short of Wall Street expectations. The reliance on spec homes to maintain a desired sales pace indicates the organization isn’t immune to broader macroeconomic trends affecting the industry.
This spec-heavy approach resulted in a significantly compressed gross profit margin compared to a year ago. However, executives believe that having sufficient inventory will pay dividends as builders head into the typically busy spring selling season.
How M/I Homes executes this strategy will be key. As Creek pointed out, his team is trying to find the right balance—delivering enough spec homes to meet demand during the spring selling season without building excess inventory that will sit on the market for an extended and costly period.
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