Housing affordability is stretched so thin that D.R. Horton is leaning even harder on 3.99% mortgage rate buydowns

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D.R. Horton, America’s largest homebuilder, is doubling down on mortgage rate buydowns to keep its sales volumes up amidst an affordability-strained housing market.

On its October 28 earnings call, the builder said 73% of its homebuyers in fiscal Q4 2025 received a mortgage rate buydown—up slightly from 72% in the previous quarter.

“As we anticipated on our last call, we did expect to lean in more heavily to the offering of 3.99% [mortgage rate buydown],” said Jessica Hansen, D.R. Horton’s senior vice president of investor relations. “That is something that we’ve been doing, and we saw the mortgage rate in our backlog come down. It’s actually below 5% today coming into this quarter.”

For D.R. Horton’s buyers—many of whom are first-time homeowners—the monthly payment remains the decisive factor.

“The most attractive monthly payment we can put them in is with a lower rate,” said CEO Paul Romanowski. “It’s a benefit to the homeowner over time in terms of paying down more of their principal.”

The strategy has come at a cost: incentive spending—including mortgage rate buydowns. The company’s gross margin on home sales fell to 20% in Q4 2025, down from 23.6% in Q4 2024 and well below the 26.9% in Q4 2021.

Indeed, increased incentive spending accounted for 61% of D.R. Horton’s recent margin compression in Q4, while higher litigation costs made up another 33%.

The incentives appear to be working. Net new orders rose 5% year-over-year in Q4 to 20,078—up from 19,035 a year earlier—demonstrating D.R. Horton’s ability to maintain sales momentum despite affordability headwinds.

However, its backlog continues to shrink as the builder intentionally slows housing starts to better align inventory levels and capitalize on easing construction costs.

Regionally, D.R. Horton pointed to softness in parts of Florida, including Jacksonville and Southwest Florida, where excess inventory has weighed on absorption rates. The company also described Texas as “choppy” and California as “a bit of a struggle,” while noting signs of stability across the Midwest and Mid-Atlantic.

Even with new tariffs and immigration policy headlines, the company said material and labor costs remain under control—down 1% quarter-over-quarter and 1.5% year-over-year. Many giant homebuilders are crediting softer housing starts for helping offset policy-related cost pressures.

ResiClub PRO members can read our full D.R. Horton analysis here.

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