M/I Properties’ Q4 2025 earnings call this week peeled again particulars on how one of many nation’s top-20 homebuilding enterprises will lean right into a contrarian, spec-heavy technique. Based mostly on the agency’s geographical footprint, product set and building operational efficiencies, M/I executives are betting a measured spec technique can pay dividends as homebuilding’s spring promoting season kicks into gear in a number of weeks.
Whereas opponents have shifted away from spec houses, the Ohio-based homebuilder is counting on this blueprint to keep up a optimistic gross sales tempo, with larger pricing flexibility, amid weak demand and affordability constraints.
As a lot as 75% of M/I Properties’ gross sales come from specs. This helped keep a optimistic gross sales tempo and operational effectivity, however the firm’s gross revenue margin has declined, falling from 24.6% in This fall 2024 to 18.1% final quarter.
Executives conceded that beneficiant incentives, particularly mortgage price buydowns, are needed to maneuver this spec stock.
Nonetheless, Chairman, President & CEO Robert Schottenstein affirmed his dedication to this technique, significantly with the spring promoting season nearing.
“I believe we really feel actually good about the place we’re, to not be foolish. I imply, if we didn’t, we’d change. We wish to be very aggressive in guaranteeing that we have now the standing product within the area, the stock, in order that we will benefit from what hopefully is an honest promoting surroundings over the following three to 4 or 5 months. So I believe we really feel our technique is the fitting technique,” he stated in the course of the earnings name.
M/I Properties isn’t the one public builder following this blueprint. Hovnanian Enterprises, after posting a net loss last quarter, determined to stay with a spec-heavy method. On the opposite finish of the spectrum, KB House is aggressively working to cut back specs to solely 30% of gross sales, with the objective that built-to-order houses will quickly account for the remaining 70%.
Different builders, such as Beazer Homes, Smith Douglas Homes and others, hope to cut back their spec rely, regardless of acknowledging the difficulties of attaining that objective within the close to time period.
Cautiously sustaining development and tempo
Phillip Creek, Govt Vice President & CFO, stated that whereas a spec-heavy method is central to M/I House’s technique over the quarters forward, the manager workforce has elevated vigilance and warning.
“Now, execution actually issues. We’re making an attempt to watch out to not put an excessive amount of stock in completed specs,” Creek stated. “Our hopes and plans are that we hope to shut a number of extra homes this yr than final yr. Now we have extra shops. However once more, we’re staying centered. You already know, we attempt to run a conservative enterprise. We’re not making an attempt to place stock on the market too far forward of ourselves.”
The builder’s objective is to keep up a gross sales tempo of roughly three houses per neighborhood monthly. Sustaining that tempo amid present market situations typically requires beneficiant incentives and mortgage price buydowns. In keeping with executives, attaining a sub-five mortgage price is essential to closing offers.
This spec-heavy method may keep a optimistic gross sales tempo and development trajectory, however may additionally weigh on margins over the yr.
“Margins are prone to stay underneath stress, but it surely’s not clear to me at this level that the stress in ’26 will probably be as a lot because it was in ’25. So hopefully, issues are beginning to degree off a bit. Once more, we’ll know after we know,” Schottenstein stated.
Schottenstein stated most of his divisions noticed a slight enchancment in demand final quarter in contrast with the yr prior. Because of this, he stays optimistic.
“Simply placing issues in context, we’ve all seen a complete lot worse. And you recognize, I believe that I’m optimistic in regards to the first 4 or 5 months of this yr when it comes to demand and the promoting season,” he stated.
Geographic breakdown
M/I Properties operates in 10 states all through the Midwest and the Southeast, and new contracts in This fall elevated in each areas final quarter. Schottenstein particularly pointed to Columbus, Dallas, Chicago, Orlando and Minneapolis as sturdy markets, and Creek added that Charlotte and Raleigh have additionally carried out nicely.
In Florida, Orlando has been the most effective market. In Texas, Dallas and Houston carried out nicely. Executives recognized San Antonio and Austin as areas of concern for the enterprise. Whereas they didn’t elaborate on the poor efficiency, house costs in Austin fell by roughly 5.5% final yr, the most important drop of any massive metro space within the nation.
Throughout This fall, M/I Properties posted $51 million in impairments, inlcuding $40 million in stock and $11 million in guarantee, primarily from entry-level communities with a median promoting worth of beneath $375,000. Most of those communities have been situated within the San Antonio and Austin markets.
“You at all times have a few downside subdivisions,” Creek stated. “Once we’re not getting a suitable tempo over a sure time frame, we make the enterprise determination, oftentimes to decrease the value.”
How M/I Properties determines a neighborhood’s product combine
When requested how M/I Properties makes choices on a neighborhood’s product combine, together with fashions, house measurement, and value kind, Schottenstein supplied insights.
Zoning in the end determines what will be in-built a neighborhood, however there’s some room to maneuver inside these zoning parameters. As soon as these parameters are decided, there’s an inside debate to determine the technique for every particular person neighborhood.
“The talk happens throughout the division. Generally it springs all the best way as much as company conversations about what are we going to do with that if we get that deal performed and that turns into a brand new retailer for us? What’s that retailer going to appear like? What are we going to merchandise in that retailer? Who’s the client? And, you recognize, that’s much more artwork than science,” he stated.
It’s widespread for plans to vary as market situations evolve. For instance, communities that have been initially envisioned with bigger houses could later shift towards smaller homes. M/I Properties could keep the identical density whereas adjusting lot sizes to mirror purchaser or pricing demand. One of these recalibration is a traditional course of.
Each land deal undergoes rigorous corporate-level approval. The company land workforce evaluations every of those offers, and bigger initiatives could bear a number of evaluations; classes realized in a single market are sometimes utilized to different divisions.
Key Takeaways
M/I Properties posted revenues of $1.15 billion final quarter, narrowly falling wanting Wall Avenue expectations. The reliance on spec houses to keep up a desired gross sales tempo signifies the group isn’t proof against broader macroeconomic tendencies affecting the trade.
This spec-heavy method resulted in a considerably compressed gross revenue margin in comparison with a yr in the past. Nevertheless, executives imagine that having adequate stock can pay dividends as builders head into the usually busy spring promoting season.
How M/I Properties executes this technique will probably be key. As Creek identified, his workforce is looking for the fitting stability—delivering sufficient spec houses to satisfy demand in the course of the spring promoting season with out constructing extra stock that may sit available on the market for an prolonged and dear interval.
