M/I Homes (NYSE:MHO) reported third-quarter results that reflected softer demand and higher mortgage rates, with revenue declining 5% to $1.08 billion and pre-tax income falling 38% to $87 million. The homebuilder closed 2,241 homes during the quarter, down 2% from a year earlier, while new contracts declined 2%.
CEO and President Bob Schottenstein said market conditions became more difficult as the quarter progressed, citing a rise in the 10-year U.S. Treasury yield to 5.3% at Sept. 30 from 4.5% at July 1. The average par rate on a 30-year fixed mortgage increased by nearly 100 basis points over the same period, reaching nearly 7.75%, he said.
Schottenstein said higher rates, elevated fuel prices, inflation concerns and the continued conflict in Iran weighed on consumer confidence and housing demand. He noted that mortgage rates had declined somewhat as of the call date, but said market conditions could remain “choppy and challenging” for some time.
Margins pressured by rate buydowns and lot costs
The company continued to use mortgage-rate buydowns as its primary sales incentive, though the higher cost of those incentives weighed on profitability. Third-quarter gross margin was 20.9%, including $5 million of inventory charges. Excluding those charges, gross margin was 21.3%, down 320 basis points from a year earlier.
Schottenstein said the margin decline primarily reflected higher rate-buydown costs and higher lot costs. He added that community location, home design and sales execution remain important differentiators even as builders broadly use rate incentives.
Earnings per diluted share declined to $2.56 from $3.92 a year earlier. EBITDA fell to $103 million from $157 million in the prior-year quarter, while return on equity was 9%. Selling, general and administrative expenses represented 13.1% of revenue, compared with 11.9% a year earlier, as the company expanded its community count and increased spending on advertising and promotion.
For the first nine months of 2026, M/I Homes sold 6,598 homes, up 5% from the prior-year period, and closed 6,361 homes, down 4%.
First-time buyers and inventory homes remained central to sales
First-time buyers accounted for 50% of third-quarter sales, with the company’s Smart Series affordable-home line representing about half of total sales. The remaining half of sales went to second-time or move-up buyers. Inventory homes made up 80% of third-quarter sales, while approximately 35% of quarterly closings involved homes that were both sold and delivered during the period.
The company reported a 12% cancellation rate. Its mortgage business captured 96% of company homebuyers during the quarter, up from 93% a year earlier. Buyers continued to show relatively strong credit profiles, with average credit scores of 748 and average down payments above 16%, according to Schottenstein.
M/I Financial, the company’s mortgage and title operation, generated $13.4 million of pre-tax income, down 19% from the prior-year quarter. Revenue declined 5% to $32.7 million, reflecting lower margins on loans sold, a lower average loan amount and a slight decline in originations. Loans originated declined 1% to 1,835, while loan-sale volume fell 5%.
Community growth continues, though starts have been moderated
M/I Homes ended the quarter with 246 active communities, up 6% from a year earlier, after opening 27 communities and closing 15 during the period. It expects its year-end community count to be approximately 5% above the prior year.
New contracts in the northern region increased 1% from a year earlier, while southern-region contracts declined 4%. The company’s largest third-quarter division income contributions came from Chicago, Columbus, Minneapolis, Dallas and Charlotte.
Management said Florida and Texas have been more challenging than the Midwest and Carolinas. Phil Creek, executive vice president and chief financial officer, said Orlando had held up relatively well, while Tampa and Sarasota had been more difficult. He said adjustments to pricing and incentives are being made on a community-by-community basis rather than through broad changes.
Schottenstein said the company has begun shifting toward more move-up product in select markets where first-time buyers had represented more than 75% of business. However, he said M/I Homes does not expect material companywide changes to its product strategy.
Creek said the company has modestly reduced housing starts in response to demand conditions. It ended the quarter with 721 completed inventory homes and 3,242 total inventory homes, compared with 776 completed homes and 3,001 total inventory homes a year earlier.
Balance sheet and land position remain focal points
Management emphasized the company’s liquidity and low leverage. M/I Homes ended the quarter with $620 million in cash and no borrowings under its $900 million unsecured revolving credit facility. Equity reached a record $3.3 billion, or book value of $130 per share, while net debt-to-capital was 2%.
The company owned approximately 23,400 lots and controlled about 25,600 additional lots through option contracts, for roughly 49,000 owned and controlled lots. That represents an estimated five-year supply, according to management. The company spent $290 million during the quarter on land purchases and land development.
M/I Homes also repurchased $50 million of stock during the quarter and had $200 million remaining under its board authorization. Since the start of 2022, the company has repurchased 21% of its outstanding shares.
Schottenstein said the company would be more cautious on new land deals, hiring and expenses but does not anticipate a radical strategic shift. “We have our hands firmly on the rudder,” he said, pointing to the company’s balance sheet, land position and geographic footprint as strengths for managing through the cycle.
About M/I Homes (NYSE:MHO)
M/I Homes, Inc is a residential construction company that builds and sells single-family homes for a range of buyers, including first-time, move-up and luxury-home purchasers. Its operations include land acquisition and development, home design, construction, marketing and sales, with communities offered in suburban and metropolitan markets.
The company also provides services that support the homebuying process, including mortgage financing through M/I Financial and title-related services through its affiliated operations.
