D.R. Horton closed 4% more homes in fiscal Q3 2026, but lower prices and mortgage-rate buydowns cut gross margin to 20.7% and net income 11.7% to $904.9M; EPS fell 4.8% to $3.20 and full-year guidance was cut again.
Revenue
$9.2B
0.0% YoY
Net income
$905M
-11.7% YoY
Diluted EPS
$3.20
-4.8% YoY
Operating margin
13.3%
Overview
D.R. Horton, the largest US homebuilder by homes closed, sold more houses in fiscal Q3 2026 (the quarter ended June 30, 2026; its fiscal year ends September 30) but made less money on each one. Homes closed rose 4% to 23,983, while the average closing price fell 2% to $362,000. As a result, consolidated revenue was flat at $9.23 billion. Home sales gross margin (the share of home sale revenue left after the cost of land, construction and incentives) fell from 21.8% to 20.7%. Net income attributable to D.R. Horton fell 11.7% to $904.9 million.
Diluted EPS fell only 4.8%, to $3.20, because buybacks cut the diluted share count by 7.2% (283.0 million vs. 304.9 million). Alongside the results, the company cut its full-year revenue and closings guidance for the second quarter in a row.
Key figures
Metric
Fiscal Q3 2026
Fiscal Q3 2025
YoY Change
Consolidated revenue
$9,227.1M
$9,225.7M
0.0%
Pre-tax income
$1,226.2M
$1,358.1M
-9.7%
Pre-tax margin*
13.3%
14.7%
-1.4 pts
Net income attributable to D.R. Horton
$904.9M
$1,024.6M
-11.7%
Diluted EPS
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*D.R. Horton's income statement has no "operating income" line. Pre-tax income as a share of revenue is the margin the company itself reports, so the site's operating-margin figure for this report uses the 13.3% pre-tax margin.
For the nine months to June 30, 2026 (fiscal year to date), revenue fell 4% to $23.67 billion. Net income attributable to D.R. Horton fell 20% to $2,147.6 million, and diluted EPS fell 13% to $7.45 from $8.53. Homes closed were essentially flat at 61,287 (vs. 61,495), and home sales gross margin was 20.4% vs. 22.1%.
Why margins fell: lower prices and higher incentives, not weaker volume
According to the 10-Q, gross margin fell because of "the decline in our average sales price and higher sales incentives, including mortgage interest rate buydowns offered to support affordability." A mortgage rate buydown means the builder pays the lender up front so the buyer gets a lower interest rate. It works like a price cut, but the sticker price stays the same.
The company breaks down the 110-basis-point drop (1.1 percentage points) as follows:
-110 bps: the average cost of homes closed went up while their average selling price went down
-10 bps: more capitalized interest (borrowing costs added to the value of land and homes, then expensed when a home closes)
+10 bps: lower warranty and construction-defect costs
The filing does not state a dollar cost for incentives or buydowns. It only calls them "higher" and expects them to "remain elevated during the remainder of fiscal 2026 and into fiscal 2027." Homebuilding SG&A (selling, general and administrative costs) also rose to 8.3% of homebuilding revenue from 7.8%. Together, these pushed homebuilding pre-tax margin down to 12.3% from 13.8%.
Below the pre-tax line, the result got a little worse. The effective tax rate rose to 25.1% from 23.9%, and income attributable to noncontrolling interests rose to $13.8 million from $8.5 million. That is why net income attributable to D.R. Horton fell more (-11.7%) than pre-tax income (-9.7%).
By region, the Northwest was hit hardest. Its home sales gross margin fell 440 bps and its pre-tax income fell to $68.3 million from $116.4 million, as fewer homes closed in Seattle and Salt Lake City. The Southeast was the only region where pre-tax income rose ($230.8 million vs. $224.6 million), and its gross margin held flat. Inventory impairments stayed small: $3.7 million in the quarter.
Demand: orders flat, more buyers walking away
Net sales orders (new contracts minus cancellations) were 23,084 homes worth $8.44 billion, essentially the same as a year earlier (23,071 homes, $8.42 billion). The average order price was also flat at $365,600.
The cancellation rate (cancelled orders divided by gross orders) rose to 20% from 17%, with 5,607 cancellations vs. 4,837. It rose in every region except the Southeast (flat at 19%) and the Northwest (12% vs. 15%). Flat net orders despite more cancellations means gross orders grew about 3%. Buyers are signing contracts, but more of them are not completing the purchase.
Fiscal year to date, net orders rose 5% to 66,376 homes, and order value rose 4% to $24.3 billion. The cancellation rate was 18% vs. 17%.
Backlog (homes under contract but not yet closed) was 15,983 homes worth $6.18 billion, up 14% in units and 16% in value. The average backlog price rose to $386,600 from $379,300.
Inventory and lot position
D.R. Horton had 38,000 homes in inventory at quarter end (vs. 38,400 a year earlier and 29,600 at September 30, 2025). Of these, 23,300 were unsold, and 7,600 of the unsold homes were already completed. Those finished, unsold homes are what incentives are being used to clear.
The company owns fewer lots and relies more on options:
Owned lots fell to 126,600 from 145,900 a year earlier.
Lots controlled through purchase contracts were 441,900.
Controlled lots made up 78% of the total, up from 76% a year earlier.
Controlling lots through options instead of owning them means less cash is tied up in land and less risk of writing it down if prices fall. In the first nine months, 67% of homes closed were on lots developed by Forestar or third parties, up from 65%.
Forestar, rental and mortgage
Forestar (D.R. Horton's majority-owned lot developer) earned $48.7 million pre-tax on $407.0 million of revenue, up 12% and 4% respectively. It sold 3,659 lots, and 3,370 of them went to D.R. Horton. Its pre-tax margin rose to 12.0% from 11.2%.
Rental is the clear weak spot. Revenue fell to $266.1 million from $380.7 million because single-family rental homes sold dropped to 601 from 1,065. Pre-tax income fell to $31.0 million from $54.8 million. According to the 10-Q, gross profit percentages also fell on both single-family and multi-family sales. Rental inventory still totals $3.1 billion.
Financial services (mainly DHI Mortgage) earned $70.3 million pre-tax, down 14%, and its margin fell to 31.9% from 35.7%. Gains on sales of loans and servicing rights fell to $142.1 million from $152.8 million. DHI Mortgage financed 82% of the company's closings.
Buybacks and balance sheet
In the quarter, D.R. Horton repurchased 4.2 million shares for $615.7 million and paid $127.1 million in dividends. Year to date, buybacks total 14.6 million shares for $2.2 billion. Shares outstanding were 280.7 million, down 6% from a year earlier, and $1.1 billion of repurchase authorization remains.
Funding this has used up cash. Homebuilding cash was $1.3 billion, down from $2.2 billion at September 30, 2025. Net debt to total capital (debt minus cash, as a share of debt plus equity) rose to 17.4% from 11.0% at fiscal year-end. Nine-month operating cash flow was only $880.8 million, against full-year guidance of at least $3.0 billion. That leaves the fourth quarter to generate roughly $2.1 billion. Book value per share still rose 5% to $84.85.
Takeaway: D.R. Horton is keeping volume up by giving away margin. It closed 4% more homes, but with a lower average price and heavier incentives, gross margin fell 110 bps. The rising cancellation rate (20% vs. 17%) and a second full-year guidance cut suggest those incentives are not creating new demand. The per-share numbers look better than the underlying business because buybacks cut the diluted share count by about 7%.
Guidance and outlook
The July 21, 2026 earnings release (8-K Exhibit 99.1) updated fiscal 2026 guidance for the second quarter running:
Fiscal 2026 guidance
April 2026
July 2026
Consolidated revenue
$33.5B–$34.5B
$32.5B–$33.0B
Homes closed
86,000–87,500
83,800–84,300
Income tax rate
~24.5%
~25.0%
Operating cash flow
at least $3.0B
at least $3.0B (reiterated)
Share repurchases
~$2.5B
~$2.5B (reiterated)
Dividends
~$500M
~$500M (reiterated)
After subtracting the 61,287 homes and $23.67 billion of revenue already booked, the new ranges imply the following for fiscal Q4:
Closings: about 22,500–23,000 homes, fewer than the 23,983 closed in Q3.
Revenue: about $8.8–$9.3 billion.
Buybacks: only about $0.3 billion left under the $2.5 billion target.
Management said it would give specific Q4 guidance on the conference call. That call guidance is not in the filings reviewed here.
Our read: the near-term margin trend still points down. Management expects incentives to stay elevated into fiscal 2027, and the 7,600 completed unsold homes will need to be sold. The strongest supports are the 14% larger backlog and a lot supply that is 78% optioned rather than owned. Things to watch in the fiscal Q4 / full-year 10-K:
whether the cancellation rate comes back below 20%
whether gross margin holds near 20.5%
whether the rental segment's sales recover
Source: D.R. Horton Form 10-Q for the quarter ended June 30, 2026. Guidance figures are from the company's earnings releases filed as Exhibit 99.1 to its 8-Ks dated July 21, 2026 and April 21, 2026.