Taylor Morrison’s 2026 Rebalance: Romance Over Discounts

Demand that is awakened — lit by a flame, chasing a well-deserved dream home — is fundamentally different from demand sparked by being a rental refugee, where the walls have closed in and every monthly payment feels like a frittered-away sum that could have done more.

Serving both customers today increasingly looks like operating in two entirely different businesses.

Taylor Morrison Home Corp.’s fourth-quarter and full-year 2025 results — and its outlook for 2026 — reveal a national builder recalibrating toward that reality.

The Scottsdale-based homebuilder closed nearly 13,000 homes last year, delivering $7.76 billion in home closings revenue at an adjusted gross margin of 23.0% while generating a 13% return on equity and growing book value per share by 14%.

Beneath those headline numbers lies a more important strategic message for homebuilding leaders navigating 2026’s high-rate, high-price, high-uncertainty environment:

This is a year to decide not only what to lean into — but what to step away from.

A business built for two demand curves

Less than a decade ago, Taylor Morrison deliberately expanded its geographic footprint and product mix to compete across both discretionary move-up buyers and the entry-level, first-time segment. That diversification helped power years of growth.

Now, management is signaling a pivot back toward core strengths.

CEO Sheryl Palmer framed the challenge during the earnings call, describing how different customer psychology has become across segments:

“When we’re talking about the first-time buyer environment today, with every sale, it’s really working through with them, can they make this work. When you look at the move-up and the Esplanade buyer, it’s really should I… They have the capabilities, they have the balance sheet.”

That distinction matters. The company’s resort lifestyle brand Esplanade posted stronger momentum than entry-level or move-up orders late in the year, and management expects roughly 20 Esplanade communities to open in 2026 — a strategic tailwind for margin and absorption.

The numbers reinforce the divergence. Fourth-quarter net sales orders fell 5% year over year to 2,499, while backlog shrank sharply — down 40% to 2,819 homes — setting up a softer closings environment heading into 2026.

Wolfe Research’s Trevor Allinson characterized the coming year as a “reset,” projecting closings around 11,000 homes and gross margins near 20%, with shorter-term pain tied to portfolio realignment and spec inventory liquidation.

The pivot away from commoditized growth

Central to Taylor Morrison’s strategy is a deliberate pullback from certain entry-level geographies — especially tertiary or fringe submarkets where incentives dominate buyer decisions.

Palmer addressed the shift:

“It’s refocusing the business geographically where we don’t buy land in what I would call those more fringe or tertiary locations that attract a very different entry-level buyer.”

She added that those markets often stall first when conditions tighten:

“The honest truth is it’s just not the case that the further out you get when markets slow down a bit, we see those come to a very different stop — and the level of incentives required to get those first-time buyers into a house — it’s tough.”

The earnings release reflects that discipline. Total land investment declined to $2.2 billion in 2025 from $2.4 billion the year prior, while total lot supply eased to 78,835 homesites. More than half — 54% — remains off-balance sheet, reinforcing a capital-light approach amid persistent uncertainty.

For builder executives watching closely, this is less about retreating from entry-level housing altogether than about redefining which entry-level customers fit a sustainable economic model.

From incentives to “romance”: A mix reset underway

One of the clearest operational themes from the call was a shift back toward build-to-order homes after a spec-heavy environment in 2025.

According to Palmer, buyers had been trained to chase incentives tied to finished inventory:

“What we definitely saw is the consumer — our industry trained them. And the honest truth is that the incentives were stronger with an inventory home, and the closer that home got to completion, the stronger the incentives.”

Early-2026 activity suggests a subtle behavioral change. Buyers appear more willing to personalize homes — an encouraging sign for margins:

“What we’ve seen since the first of the year is they’re showing up with more of a desire to buy what they want, where they want it, how they want it. They want to appoint the house in a way. Lot premiums have become quite important again.”

Wolfe Research noted that January build-to-order mix improved sequentially, a development analysts believe could help gross margins recover after an expected trough near 20% in the first quarter.

But the transition won’t be immediate. CFO Curt VanHyfte emphasized the pace of normalization:

“That’s something that’s not going to happen overnight… we still have a little bit higher number of finished inventory than maybe we would like.”

Margin pressure today, positioning for tomorrow

Financially, Taylor Morrison’s results show both resilience and strain.

Fourth-quarter home closings revenue declined 10% to $1.96 billion, with closings down 8% and average selling price slipping to $596,000. Home closings gross margin fell to 21.8%, a 300-basis-point drop from the prior year, reflecting incentives and mix pressures.

For the full year, adjusted gross margin slipped to 23.0% from 24.5%, while SG&A improved to 9.5% of revenue — evidence of continued cost discipline even as volume softened.

Looking ahead, management guided first-quarter 2026 gross margins to approximately 20%, signaling continued near-term pressure.

Still, the balance sheet remains a strategic asset. The company ended 2025 with $1.8 billion in liquidity, net homebuilding debt-to-capitalization of 17.8%, and an expanded $1 billion share repurchase authorization — signs of financial flexibility even as earnings expectations reset.

Playing offense by choosing what not to do

Perhaps the most telling strategic signal is management’s emphasis on restraint.

“It’s just not our intention to just throw inventory in the ground and sell at all cost, given, I think, the value creation that we have with our land holdings,” Palmer said.

That mindset echoes across the earnings outlook. Average closing price guidance of $580,000 to $590,000 for 2026 suggests a disciplined approach to pricing rather than aggressive discounting to drive volume.

For industry peers, the implication is clear: the current market is forcing builders to sharpen their definitions of “core” customers and geographies.

Analyst commentary supports that view. Wolfe Research described Taylor Morrison’s shift away from commoditized tertiary markets as “the correct move” for a builder whose brand equity rests on trust and differentiation.

What builder leaders should take away

Taylor Morrison’s 2026 strategy highlights a broader industry truth: the entry-level buyer — long the engine of volume growth — remains structurally challenged by affordability, financing friction, and consumer confidence.

Serving that buyer today often requires heavy incentives, slower cycles, and thinner margins. Meanwhile, discretionary and lifestyle segments — particularly those with higher balance-sheet strength — offer more stable demand in volatile conditions.

The company’s pivot is less a rejection of first-time buyers than an acknowledgment that the economics of serving them have changed.

In a K-shaped housing economy defined by high borrowing costs, cost-of-living pressures, and widespread job-security anxiety, Taylor Morrison appears to be choosing a narrower lane — one built on differentiation, brand, and customer intensity rather than pure scale.

That may mean fewer closings in the short term. It may mean margin pressure through early 2026. But for a builder positioning itself for the next cycle rather than the last one, it reflects a strategic calculus that many peers may soon find unavoidable.

Because in this market, serving two buyers increasingly means running two businesses — and the winners may be those willing to decide which one they’re truly built for.