Meritage Homes Navigates 'Softer' Housing Market, Prioritizes Margins Over Volume
SCOTTSDALE, Ariz. – Meritage Homes (NYSE: MTH) closed the book on a year of unexpectedly tepid housing demand, with executives describing 2025's fourth quarter as the culmination of "much softer than anticipated" market conditions. The dual headwinds of persistent affordability constraints and eroding buyer confidence have forced a strategic pivot, emphasizing margin protection and operational efficiency over aggressive sales volume.
"We're seeing a clear pullback in buyer urgency," said Executive Chairman Steve Hilton during the company's quarterly earnings call. Despite this, Hilton pointed to a silver lining: strong backlog conversion, fueled by the company's 60-day closing guarantee and a healthy supply of nearly completed spec homes. This allowed Meritage to deliver 3,755 homes and generate $1.4 billion in home closing revenue for the quarter, with key metrics like adjusted gross margin (19.3%) and EPS ($1.67) meeting guidance.
The company's strategy appears twofold. In the near term, management is battening down the hatches, opting to "hold the line on incentives" even as average absorption rates dipped to 3.2 net sales per month from 3.9 a year ago. This deliberate choice to prioritize profitability over sales pace resulted in a modest 2% year-over-year decline in orders, offset by an 18% increase in average community count.
Simultaneously, Meritage is planting seeds for future growth. Community count hit an all-time high of 336, up 15% year-over-year, with guidance for 5% to 10% growth in 2026. CEO Phillippe Lord detailed a proactive reshuffling of the land portfolio, terminating some contracts to reallocate capital toward share repurchases and future, more strategic land acquisitions. "Land prices have not significantly declined, but we are seeing opportunities return to the market with more favorable structures," Lord noted.
The market landscape is highly fragmented. While Meritage cited resilience in markets like Dallas, Houston, and the Carolinas, it acknowledged "aggressive competition" and weaker demand in Austin, parts of Florida, and Northern California. In these areas, the company is choosing to "hold our ground," accepting lower volumes while working through inventory.
Financially, Meritage is leveraging its balance sheet strength to reward shareholders. The company completed $150 million in share repurchases in Q4 alone, returning nearly $180 million in total capital, and outlined plans for $100 million in buybacks per quarter in 2026. CFO Hilla Sferruzza forecast 2026 closings to be roughly in line with 2025, underscoring a expectation for continued market stabilization rather than a sharp rebound.
Analyst & Industry Perspectives:
"Meritage's discipline is commendable in this environment," said David Chen, a housing sector analyst at Clearwater Capital. "They're not chasing bad sales with excessive discounts. Their community growth and strong balance sheet position them well for the eventual recovery, even if the timing remains uncertain."
"It's a tough read," remarked Sarah Miller, a real estate broker in Meritage's active Raleigh market. "Buyers are still out there, but they're nervous and hyper-sensitive to monthly payments. The 60-day close guarantee is a powerful tool that cuts through that anxiety."
"This is just rearranging deck chairs," argued Marcus Thorne, a vocal critic and editor of The Housing Contrarian newsletter. "Buying back stock while the core business softens is a classic management tactic to prop up EPS. They're calling it 'prudence,' but it looks like a lack of compelling growth ideas. The 14% cancellation rate tells the real story—demand is fragile."
"The focus on operational efficiency through technology is the underrated story here," added Priya Sharma, a supply chain consultant for homebuilders. "Their sub-110-day cycle time is a major competitive advantage. It allows them to be nimble and control costs in a way many peers cannot, which directly supports that margin-first strategy."
Looking ahead, management pointed to early signs of improved demand in January but cautioned it was "too early to tell" if the uptick is sustainable. The key swing factors, they reiterated, remain mortgage rates, job security, and the broader cloud of consumer confidence. For now, Meritage Homes is navigating the downturn by tightening operations, optimizing its land bank, and waiting for the long-term fundamentals of housing undersupply to reassert themselves.