M/I Homes Navigates Choppy Demand with Record Orders and a Strategic Shift to Move-Up

Despite a 9% revenue decline, the builder posts 15% order growth, leaning on mortgage incentives and a deliberate mix shift toward higher-priced communities.

MHO · Earnings Call · 2026-07-29

Q2 Results: Record Orders, Lower Revenue

M/I Homes opened its second-quarter call with a note of defiance.

Despite continued challenges in the broader economy, choppy demand, economic uncertainty, rising interest rates, and the impact of the conflict in The Middle East, we are very proud of our results.
Robert H. Schottenstein, Chairman, CEO and President · 2026-07-29

The numbers bear that out: new contracts hit a record 2,390 homes (up 15% year-over-year), while revenue fell 9% to $1.1 billion as closings declined 6%. The divergence is largely a function of two forces: a deliberate step-up in spec sales (78% of the quarter's orders) and an ongoing reliance on mortgage rate buy downs to keep the sales pace alive.

Strategic Shift to Move-Up

Perhaps the most notable change in the call was the product mix. Bob Schottenstein highlighted that Smart Series—the company's most affordable line, aimed at first-time buyers—dropped to 43% of sales from 52% a year ago. When pressed, he explained it is a two-sided move: "I think it is a little bit of both. I think there is a little bit more demand there. We have always been really strong with our move up market." Management also noted that the 49 new communities opened in the first half carry an average sale price around $575k, well above the company backlog average of $540k. That tilt is not accidental; underwriting now often favors move-up deals because, as Bob put it, "some of the more high priced or move up land opportunities pencil better in terms of underwriting."

The trade-off is margin. Gross margin came in at 22.0% (22.5% ex-inventory charges), down roughly 3.5 points year-over-year. The driver, as in prior quarters, is the cost of financing incentives. “If it were not for mortgage rate buy downs, industry wide, from the best performing builders to the worst,” — Robert H. Schottenstein, Chairman, CEO and President · 2026-07-29 Bob warned, “the sales environment would be bleak.” — Robert H. Schottenstein, Chairman, CEO and President · 2026-07-29 That theme is not new — a year ago he described the same dynamic: “Absent the inventory charges... our margins are down about 250 basis points year over year, and the majority of that is due to mortgage rate buy downs.” — Robert Schottenstein, CEO and President · 2025-10-22 This quarter the company spent more on buy downs than in Q1, reflecting the rise in mortgage rates to around 7% at par. The rate buy strategy is supported by the mortgage operation, which captured a record 96% of the business (up from 92% a year ago). That capture rate is a competitive asset—it lets the builder price incentives efficiently and, as Derek Klutch noted, helps “drive sales” even in a soft market. The mortgage rate buy downs are the primary tool, and the company has kept its government program at roughly 5.4% for 30-year fixed, with conventional slightly above 5%.

Balance Sheet Strength and Land Pressures

The balance sheet remains a fortress. The S&P upgrade to BB+ marked a milestone, and equity hit a record $3.2 billion (book value $128/share). Debt to cap is 18%, and net debt is negative. The company ended the quarter with $736 million in cash and no borrowings on its $900 million revolver. Gross margin in the latest quarter was 22.0%, down from 25% a year ago, but management points to cycle-time improvements and some construction-cost relief as offsets. Land remains a key focus. The company owns a 2.5-year supply and controls a 5-year supply, with 60% in the Southern region. However, a new pressure surfaced: “data center buyers overpaying significantly for certain land,” — Phillip G. Creek, Chief Financial Officer (CFO) · 2026-07-29 as Phil Creek observed. That is raising land costs in select areas, though M/I's 85% self-development model gives it some insulation. The company also noted it wrote off less than $1 million in deposits on abandoned deals, and is seeing more finished-lot opportunities in the market. What changed this quarter is not a strategic pivot but a subtle recalibration: a slightly larger bet on move-up communities, a continued but costlier reliance on rate buy downs, and the first signs that data-center demand is distorting the land market. The test will be whether the mix shift can hold margins as the 10-year yield remains elevated. For now, M/I Homes is delivering record orders and a 10% pretax margin—a result that ranks at the top of the sector.