Meritage Homes (NYSE:MTH) executives said the fourth quarter of 2025 capped a year of “much softer than anticipated” housing conditions as affordability constraints and weakening buyer confidence weighed on demand. On the company’s quarterly analyst call, management emphasized a more cautious near-term posture on incentives and sales pace while continuing to expand community count, adjust land positions, and step up shareholder returns.
Fourth-quarter results and market backdrop
Executive Chairman Steve Hilton said fourth-quarter orders totaled 3,224 and average absorption was 3.2 net sales per month, reflecting seasonal patterns, “a pullback in buyer urgency,” and a strategic choice to “hold the line on incentives.” Even so, Hilton highlighted another quarter of strong backlog conversion, driven by the company’s 60-day closing guarantee and a supply of nearly completed spec homes.
For the full year, Hilton said Meritage sold 14,650 homes, “essentially flat” versus the prior year. Community count grew 15% year over year to 336, which management said helped offset slower demand. Hilton said management expects near-term conditions to remain influenced by elevated mortgage rates, job security concerns, and broader macro and geopolitical uncertainties, while reiterating that longer-term demand is supported by demographics and an undersupply of affordable homes.
Strategy: incentives discipline, land “top grading,” and overhead actions
CEO Phillippe Lord said the company maintained a balanced approach to capital allocation, including terminating certain land deals to redeploy capital toward share repurchases and “new land that will enhance our long-term portfolio.” He said the company does not expect the level of deal terminations seen in the quarter to recur if the economic environment remains stable.
Lord described a land market in which some deals are “returning to the market” in more strategic locations or with more favorable structures, even though “land prices have not significantly declined.” He said Meritage unwound some existing land contracts to reallocate capital to share repurchases and future land opportunities.
Lord also said the company “right-sized” overhead in the quarter, aided by multi-year technology initiatives centered on automation and process efficiencies. Management framed these actions as supportive of Meritage’s move-in-ready, all-spec strategy, with a goal of sustaining efficiency and operating leverage even in uneven market conditions.
Orders, communities, inventory, and regional trends
Lord said fourth-quarter orders were down 2% year over year, largely due to an 18% decline in absorption rates that was “mostly offset” by an 18% increase in average community count. The cancellation rate rose to 14%, but management noted it remained slightly below the historical mid-to-high teens, citing a faster sale-to-close process.
Meritage ended the quarter with 336 communities—an all-time high—up from 292 a year earlier. The company opened 35 communities in the quarter and more than 160 for the full year, and management guided to 5% to 10% community count growth in 2026 (clarified as growth off the year-end 2025 count).
Lord said average absorption of 3.2 compared with 3.9 a year earlier reflected an intentional decision not to “further lean into incentives” in markets where demand proved inelastic, prioritizing margin alongside velocity. Long term, management reiterated a target of about four net sales per month, while acknowledging a willingness to run modestly below that in the current environment on a “community-by-community” basis.
Orders’ average selling price was $374,000, down 6% year over year, which management attributed to higher incentive and discount usage and geographic mix. Lord said January selling conditions improved versus December and expressed hope that lower mortgage rates could ease the “lock-in” effect for existing homeowners.
Regionally, management said conditions were highly localized. Meritage cited Dallas, Houston, and North and South Carolina as stronger markets with resilient local economic conditions, while noting weaker demand and aggressive competition in Austin, San Antonio, parts of Florida, Northern California, and Colorado. Lord said the company chose to “hold our ground” in those areas and accept lower volumes while working through excess inventory into the spring selling season.
On production, Meritage started about 2,700 homes in the quarter, down 24% from the prior year’s fourth quarter. Management said faster cycle times allow the company to flex starts higher or lower depending on spring demand. Backlog conversion hit a company record 221%, with 63% of fourth-quarter closings also sold during the quarter. Ending backlog fell 24% year over year to roughly 1,200 homes.
Meritage reported about 5,800 spec homes at quarter end, down 17% year over year, with 17 specs per store—its lowest level since mid-2023—representing about a five-month supply. Completed specs were about 50% of the total spec count, above management’s target of roughly one-third, which the company said it intends to reduce during the spring selling season.
Margins, charges, cash, and shareholder returns
CFO Hilla Sferruzza said fourth-quarter home closing revenue fell 12% year over year due to 7% lower closing volume and a 5% decrease in closing ASP to $375,000. She said the company’s affordability focus is reflected in its ASP being below the $411,000 median ASP on 2025 U.S. closings, as cited on the call.
Home closing gross margin was 16.5%, while adjusted gross margin was 19.3%, excluding $27.9 million of terminated land deal walkaway charges, $7.8 million of inventory impairments, and $3.2 million of severance costs. Sferruzza said the company terminated over 3,400 lots associated with the walkaway charges, with about two-thirds of the charges tied to the East region. She said impairments reflected pricing adjustments to local market conditions.
Sferruzza said direct costs declined nearly 4% per square foot year over year, though benefits will be more visible later in 2026 as the company sells through older spec inventory. Cycle times remained on a sub-110-day calendar schedule. Management reiterated a long-term gross margin target of 22.5% to 23.5%, which it expects to reach when incentives return to historical averages and conditions normalize.
SG&A was 10.6% of home closing revenue, slightly improved from 10.8% a year earlier, with lower performance-based compensation partly offset by lost leverage and higher external commissions and technology costs. Sferruzza said the company’s co-broke capture rate remained in the low 90% range and that it continues to see repeat realtor business.
The effective tax rate was 18.5%, down from 22.1% a year earlier, which Sferruzza attributed in part to the purchase of below-market 45Z transferable clean fuel production tax credits. She also said fewer homes qualified for energy tax credits under the Inflation Reduction Act due to higher construction thresholds, and Meritage expects minimal 2026 impact from the elimination of those energy credits by June 30 because the company was not eligible for such credits in most markets during 2025.
On the balance sheet, Meritage ended 2025 with $775 million of cash, no borrowings on its credit facility, and net debt to capitalization of 16.9%. Land spend was $416 million in the quarter, 40% lower year over year, and the company forecast land acquisition and development spend of up to $2 billion in 2026.
Management detailed a stepped-up capital return program, including plans to buy back $100 million of shares in each quarter of 2026, assuming no material market shifts. Meritage repurchased more than 2.2 million shares in the fourth quarter and bought back $295 million for the full year, reducing share count by 6% and leaving $514 million available under its authorization at year end. The quarterly dividend was increased 15% year over year to $0.43 per share in 2025, and management said it will evaluate the 2026 dividend level and provide an update publicly.
2026 guidance and what management is watching
Sferruzza said full-year 2026 closings are expected to be in line with 2025 in both units and home closing revenue, based on current market conditions. For the first quarter of 2026, Meritage guided to:
- Home closings of 3,000 to 3,300 units
- Home closing revenue of $1.13 billion to $1.24 billion
- Home closing gross margin of 18% to 19%
- Effective tax rate of about 24%
- Diluted EPS of $0.87 to $1.13
In the Q&A, management said January demand appeared stronger than late 2025, citing improved prospect funnels and feedback from the realtor community, though it cautioned it was “too early to tell” whether improvements are structural. Management also pointed to potentially moderating financing incentive costs and the expected flow-through of lower direct costs later in 2026, while continuing to cite consumer confidence as a key swing factor for demand.
About Meritage Homes (NYSE:MTH)
Meritage Homes Corporation is a national homebuilder and residential developer headquartered in Scottsdale, Arizona. Founded in 1985 as Winchester Homes and later rebranded to Meritage Homes, the company specializes in designing, constructing and selling single‐family detached and attached homes. With a focus on energy efficiency and sustainable building practices, Meritage Homes markets its properties under the GreenSmart program, which integrates high‐performance features aimed at reducing long‐term energy and water consumption for homebuyers.
The company’s core activities encompass land acquisition, residential community planning, home design, construction management and real estate sales.
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