As major builders like D.R. Horton and Tri Pointe Homes trim new home starts to protect margins, Beazer Homes is taking a page out of Lennar’s playbook.
Beazer’s Q4 earnings call reveals a builder determined to sustain a robust sales pace, even as it navigates a lower-margin reality driven by a spec-heavy approach and increased incentives.
With margins shrinking and homebuyer demand lagging, Beazer is shifting more production to move-up homes that offer higher margins, and a more discretionary, less price- and mortgage-rate-sensitive buyer. With younger Americans increasingly unable to buy a home, Beazer plans to focus less on the entry-level segment in the quarters ahead.
Beyond this shift, the builder’s innovative energy-efficient homes offer a roadmap for competitors. Beazer Homes is betting it can get a leg up on the competition by offering consumers a sustainable product that can yield thousands of dollars in savings per year.
The following analysis discusses how Beazer is navigating today’s difficult market dynamics and explains how the builder plans to increase margins sequentially over the coming year.
Beazer relies heavily on spec homes to drive sales
Since Beazer is prioritizing a pace-over-price strategy, the builder is leaning heavily on spec homes to push inventory. About 75% of sales in the prior quarter were spec-driven.
Beazer executives want to ideally bring the share of spec homes down to 50% of inventory, but that likely won’t happen soon, given the current environment.
“We are gonna play in the market that is out there, not the one that we want,” CEO Allan Merrill said. “We are dealing with the reality that right now, the buyer dynamic is that specs are how to drive an acceptable sales pace.”
Homebuilders need to rely more on spec inventory due to a shrinking backlog of orders. Reflecting this trend, Beazer’s total net new orders were down 7.8% annually and decreased 19.3% per community year-over-year.
“I think specs are gonna stay much higher than we would like,” Merrill said. “We don’t love being at [75% spec] because we absolutely do make more money on to-be-builts where we allow buyers to have the style selections in their home.”
With the spring selling season coming early in 2026, Merrill cautioned that the share of spec homes could rise in the near term. However, he emphasized that any increase in specs in the near term will be thought out and reflected in
“The extent that it’s up, it’s going to be because sales pace supported it being up, not because we were chasing a dream,” Merrill said.
How Beazer Homes plans to improve its margins
The combination of a higher spec percentage and larger incentives results in a gross profit margin of 17.2%, down from 20.4% a year ago. Next quarter’s results could be even tougher, with a gross profit margin of 16% and fewer homes in the backlog to start fiscal year 2026.
However, Beazer executives are confident that this is the low point and that the company can improve margins by about 300 basis points over the next year through a combination of two strategies.
Cost savings and building efficiency
Beazer Homes expects to reduce the cost of delivering a home by $10,000 each by Q4 2026, with savings expected to grow sequentially throughout the year. These cost savings are forecasted to increase margins by about 200 basis points.
Most of these savings are the result of a rebidding process with contractors and vendors, leading to more favorable, discounted contracts.
However, some of the savings result from reducing the cost of delivering Beazer’s sustainable, zero-energy-ready home. Beazer Homes was the first national builder to commit to building 100% of its new homes to comply with the U.S. Department of Energy’s zero-energy-ready standard, and is the first builder to do so at scale.
Beazer can now build these homes more cost-effectively. Once built, they also result in substantial cost savings for consumers. Merrill provided an example of a recent closing in Atlanta that demonstrated savings of about $3,000 per year compared to comparable new homes, chiefly through lower utility bills.
Implications for other builders
Beazer’s emphasis on cost-effectively building energy-efficient homes reveals an opportunity for other builders. The down payment and mortgage aren’t the only roadblocks keeping buyers from entering the market — the ongoing costs of homeownership are a major hindrance.
As building technology advances, the most forward-looking builders will find ways to keep these ongoing costs down through energy efficiency. This is not only a benefit for the consumer — offering more efficient homes is a unique selling proposition that can close more prospective buyers, especially in a tight market.
Shifting away from entry-level communities
Beazer Homes primarily targets entry-level and first-time move-up buyers, but the builder is shifting away from the more affordable communities as entry-level buyers are increasingly unable to afford homes.
“Our most aggressive incentives have occurred in our communities priced below $500,000, typically three to five points above our [higher-priced] communities,” Merrill said.
The share of Beazer’s closings from these lower-priced communities is expected to fall by double digits by the end of fiscal year 2026.
This shift reflects an unnerving reality — the share of first-time home buyers is now at a record low of 21% and the typical age of first-time buyers is now at an all-time high of 40 years. Young Americans are increasingly unable to afford to buy a home, and this trend could only get worse over time.
Implications for other builders
In the near-term future, builders specializing in the entry-level segment may need to choose between shifting strategies or accepting lower margins. Beazer’s earnings call underscores the need for stronger incentives to drive sales among entry-level buyers until the economic outlook for younger Americans improves.
Inventory may need to increasingly move to where the demand is, whether that is build-to-rent or to more established, “discretionary” move-up buyers.
Key Takeways
At first glance, Beazer Homes’ earnings results offer a grim reality. Margins are low and are expected to trend even lower next quarter. The builder’s less profitable spec homes are also expected to dominate inventory in the quarters ahead.
However, a deeper dive reveals a company that is shifting strategies and leaning into its strengths by increasing its focus on move-up communities, which offer better margins and stronger demand in the current environment.
Beazer is also committed to delivering a sustainable, forward-looking product that can deliver real savings for consumers. Beazer’s leadership in producing zero-energy-ready standard homes at increasingly cost-effective rates could serve as a model for other builders looking to invest in innovative building processes.
English (US) · 