M/i Homes Hews To Its Order Pace; Margins Come Under Pressure

In its quarterly earnings report a few months ago, M/I Homes business executives said the top-15-ranked homebuilder would maintain a spec-heavy approach – carefully and methodically – to build sales momentum leading up to and into the spring selling season. 

The latest quarterly financial and operational performance attests to M/I’s embrace of that strategy, as about half of its deliveries were spec homes in Q1 2026. 

However, as other homebuilders who’ve leaned into emphasizing production pace over price in a bumpy, choppy Spring Selling season have shown, this blueprint comes with tradeoffs.

While M/I Homes maintained positive sales figures, this order pace came at the expense of lower margins and closing prices. 

Sales ticked up 3% compared with the first quarter of last year, and M/I Homes’ monthly sales pace ran consistent with 2025. However, the average sales price fell 4% to $459,000, down from $476,000 a year ago. 

M/I Homes President, CEO and Chairman Robert Schottenstein, during a Q1 2026 earnings call on Wednesday, acknowledged that he was a bit surprised by the dip in the average closing price. 

Schottenstein characterized much of the decline as a mix shift, i.e., an increasing share of attached townhomes, which generally sell at lower prices than detached homes. However, reading between the lines, it’s hard to argue that the current environment, marked by uncertainty and consumer hesitancy, doesn’t take at least some of the responsibility. 

“We knew [the ASPs] would be lower. I didn’t think it would be maybe quite this much lower,” Schottenstein acknowledged. 

A look at M/I Homes’ spec strategy

M/I Homes takes a market-by-market and community-by-community approach to determine each location’s product mix, including the amount of spec inventory. 

“We’re also trying to continue to be focused on when we put specs out there. Let’s make sure we put the right specs out there on the right lots,” said Phillip Creek, executive vice president and CFO. 

Schottenstein acknowledged that maintaining a high spec count isn’t ideal, but it is the best way to manage a strong sales pace amid an environment of tepid demand and lagging to-be-built orders. M/I Homes reported a total backlog sales value of $1.20 billion last quarter, a 23% decrease year-over-year. As a result, spec sales have become a main driver of pace. 

“We’ve always, always tried to generate more to-be-built than spec sales. Having said all that, we’re also trying to successfully balance pace. And we’ve – initially, when we first got into rate buydowns, it was strictly for specs. But for some time now, we’ve been heavily focused on rate buy-downs for to-be-builts as well because they do generate higher margins. And it should go without saying, but I guess I’ll say it anyway, all of that gets poured into the strategy,” Schottenstein said. 

The impact of the war in Iran

Since the beginning of March, the United States economy has faced a new barrage of economic volatility, rising mortgage rates, higher gas prices and lower consumer sentiment.

This volatility affected M/I Homes’ performance last quarter, at least a little. 

Schottenstein argued that there were green shoots during January and February, with positive sales and traffic momentum. However, that slowed down somewhat in March.

New contracts were up 3% year-over-year last quarter. This included an 11% increase in January and a 7% uptick in February. However, that momentum stalled in the latter portion of the quarter, as March saw a 6% yearly decline in new contracts. 

“During this period, we saw improved traffic and heightened homebuyer activity as we began the spring selling season. However, market conditions slightly shifted at the end of February and into March as events in the Middle East pushed mortgage rates up higher, impacted gas prices, and contributed to further market uncertainty.” 

Executives said that there wasn’t any noticeable impact on material prices yet.

They remained optimistic about the market’s overall future, despite noting a high degree of economic and geopolitical uncertainty.  

“There’s just so much uncertainty,” Schottenstein said. “During our last conference call, we weren’t talking about a war. We weren’t talking about $4 gas prices. In 90 days, look how things like that have changed. It’s very, very hard to predict what’s going to happen. Conditions right now are marked with uncertainty. Having said that, I think housing is holding up pretty damn well. I’ve seen a whole lot worse, and so has anyone that’s been in this business more than a couple of years.” 

Rising incentives

In response to rising mortgage rates — the average 30-year fixed-rate mortgage is now around 6.3%, up from roughly 6.0% at the end of February — M/I Homes continued to lean on mortgage rate buydowns to drive sales. M/I Homes doesn’t report a specific incentive rate, but the quarterly earnings indicate that incentives clearly put downward pressure on margins. 

Despite a comparatively strong sales pace, quarterly revenues fell 6% from a year ago, and gross profit margins fell 390 basis points year over year to 22.0%. 

“In managing all of this, mortgage rate buydowns continue to be an important part of our sales strategy,” Schottenstein said. 

As Schottenstein explained, the vast majority of M/I Homes buyers want a 30-year fixed-rate mortgage. M/I largely offers a 4.875% rate on spec homes, and a rate near 5.0% for to-be-built homes. 

“There are some exceptions. It’s probably more than two, three, or five exceptions, but we have 200-plus communities. The vast majority of our communities, those programs are what is working for us now and resulted in our 3% year-over-year increase in sales,” Schottenstein said. 

Geographic breakdown

M/I Homes operates in 10 states and 17 major markets, predominantly in the Midwest and the South. While the South performed better for M/I Homes during and immediately after the COVID pandemic, Schottenstein said that the Midwest now generally offers higher margins than the Sun Belt. 

He pointed to Midwestern markets such as Chicago, Minneapolis, Columbus and Cincinnati as strong markets where M/I Homes expects to grow operations 5% to 10%  a year for the foreseeable future. 

On the other end of the spectrum, Schottenstein called Florida one of the more challenging markets, although the Orlando division continues to perform quite well. 

“For a while, our Florida markets had some of the best margins in the company. That’s not the case today,” he said. 

He pointed to Southwest Florida, widely seen as one of the most challenging homebuilding markets in the country, as a sore point. Submarkets in that region of the state have seen some of the steepest price corrections in the country, as rising costs, strong hurricanes and skyrocketing insurance rates have deterred buyers. 

“I think right now, if I had to identify any part of our business that is feeling the pinch more than others, it would be the West Coast of Florida, really from Tampa down through Sarasota. That appears to be the most challenging right now. It’s not horrible, but it’s just nowhere near what it once was. We’re working through it.”

Key Takeaways

M/I Homes is following a pace-over-price strategy, in a similar vein to competitors such as Hovannian Enterprises, KB Home and Lennar. Amid an environment of declining backlog orders and to-be-built sales, M/I Homes elected to maintain positive sales momentum with spec sales, which appears to have negatively impacted sales prices and margins. 

However, M/I Homes is also working to strike a smart balance – building enough spec homes for the remainder of the spring selling season, without delivering too much inventory that lingers on the market and drives up incentives. 

Executives are cautiously optimistic that profit margins have reached a low point. However, with economic and geopolitical uncertainty potentially clouding the picture for the foreseeable future, only time will tell.