M/I Homes doubles down on specs as other builders pull back

As many homebuilders scale back on spec inventory to preserve margins, M/I Homes continues to hew to a contrarian strategy: More specs. 

During earnings calls for Q4 2025 and Q1 2026, M/I Homes executives reiterated their plans to maintain a spec-heavy playbook. The company’s Q2 2026 earnings call last week indicates that the M/I team will stay the course as an outlier.

About 78% of M/I Homes’ second-quarter orders were for spec homes. During the call, M/I Homes executives said that the company kept spec inventory high due to the current rate and demand environment.

The builder, ranked 11th in HousingWire’s Homebuilder Rankings, leaned on this steady supply of spec homes to boost overall sales volume. Executives say the company has been able to maintain elevated spec sales while controlling risk by improving construction cycle time to reduce overhead costs and concentrating inventory on precisely the right lots, home floor plans and elevations. 

Still, this spec inventory typically requires generous incentives and mortgage rate buydowns to sell. As a result, margins on these homes tend to fall below those of build-to-order homes. 

“That number varies from market to market. In nearly every one of our 17 markets, the margins on to-be-builts are better. In some, just slightly. In others, it could be one or 200 basis points, perhaps more in a couple of select instances. In general, the margins are higher on to-be-builts. It’s just that the differences can vary pretty meaningfully market to market,” Robert Schottenstein, M/I Homes Chairman, CEO and President, said during the earnings call. 

The company’s emphasis on spec homes highlights a broader strategic choice facing today’s builders as they navigate a slower market. Builders must decide how to maintain sales momentum and capture buyer demand without sacrificing too much on pricing power, profitability or margins. 

A ‘subdivision by subdivision’ approach to sales and incentives

During Q2, M/I Homes sold 2,387 homes, 15% more than last year and a record-setting level for any second quarter in company history. Sales were up 13% in April, 23% in May and 9% in June. During the first six months of 2026, the builder sold 4,737 homes, 8% more than a year ago. 

At a time when new home sales across the board were down 5.6% year over year nationally as of June, M/I Homes’ results stand out. However, for M/I Homes, incentives remained a crucial tool in driving sales. While the builder’s gross profit margin held relatively steady at 22.0% compared with the previous quarter, that was down from 24.7% a year ago, revealing the price of relying on incentives.

“We believe the primary driver of our solid sales results is well-located communities and excellent product. At the same time, we continue to use mortgage rate buydowns as our primary incentive, and given the current rate environment, will continue to promote with such buydowns for the foreseeable future,” Schottenstein said. 

“Look, let me say it this way…from the best performing builders to the worst, if it weren’t for mortgage rate buydowns, the sales environment would be bleak. I think everyone knows that,” he added. 

However, incentives alone are not enough. The key is matching incentives to buyers, paired with well-placed communities and a well-built home.

“Everybody’s buying rates down, but not everybody’s business is up. You’re always trying to balance pace and price,” Schottenstein said. 

According to Schottenstein, buyers responded well when mortgage rates fell to just under 5%. With the average 30-year mortgage now approaching 7.0%, those buydowns are expensive – but unavoidable. 

However, M/I Homes doesn’t take a one-size-fits-all approach. The builder leverages its own in-house mortgage business, M/I Financial, LLC, to carefully align incentives to each community and buyer profile. More affordable communities typically require greater closing cost assistance, while other buyers may prefer adjustable-rate mortgages (ARMs) or design studio upgrades. 

As a result, M/I Homes CFO Phillip Creek called the company a “subdivision by subdivision business”

“We try not just to use a shotgun approach, and everybody gets this. Our mortgage company is able, with their loan officers and our processors, to target individual programs for our customers, and we think that’s been very helpful to us,” Creek explained. 

Schottenstein also noted that, in certain markets, some builders have likely been too aggressive with price discounts or mortgage rate buydowns. These unnecessary price cuts, he argued, can disrupt local markets. 

“Some of that can have a big impact on certain markets where, for whatever reason, you may see big discounting going on by certain builders, and others of us scratch our heads and go, ‘Why? You don’t need to do that,’” he remarked. “I think right now the buyer pool is relatively constrained, and we’re all fighting for those that are out there. What each of us does can impact the others. We try to focus on what we think is best for our business.”

Additionally, while not an incentive, an uptick in SG&A spending of about 3.0% year over year was tied, in part, to a higher marketing budget. As the buyer pool remains tight, M/I Homes had to focus more resources on driving traffic to its communities. This included increased spending on community advertising, lead generation and promotional efforts. 

Move-up sales ticked up last quarter; “A locations” reign supreme

About one in two M/I Homes buyers last quarter were first-time buyers. The Smart Series, the builder’s most affordable line of homes that primarily caters to entry-level buyers, made up 34% of total sales, compared with 52% a year ago. 

This shift was mostly the result of an uptick in move-up sales, a change that was part happenstance and part deliberate strategy. 

“I think it’s a little bit of both. I think there is a little bit more demand [with move-up],” Schottenstein remarked.

Schottenstein noted that, in recent quarters, higher-priced and move-up land opportunities have increasingly offered more attractive underwriting potential. As a result, the company has identified select infill and well-located opportunities that appear particularly compelling.

“I will say that in select markets, we have strategically – and we began this probably 18 to 24 months ago – looked to find more locations where we could sell the move-up market because we just thought there would be better demand for it, and we think we do a good job of executing,” he said. 

These are typically centrally located, sought-after locations.  

“I’ve often said, I’d rather overpay for an A location than to try to steal a B, because the A locations are the ones that really produce the results, regardless, oftentimes, of the macroeconomy,” Schottenstein said. 

Schottenstein added that many of M/I Homes’ communities are achieving strong sales paces and premium margins due to their locations and product quality. While the builder’s 22% margin figure represents an average across 234 communities, a significant number are delivering margins above that level, with some exceeding 23% and 24%.

Broad-based regional strength

M/I Homes executives said they observed broad-based regional strength in Q2, led by the Midwest and Carolinas. Columbus, Chicago, Minneapolis, Raleigh and Charlotte were among the strongest divisions. 

New contracts increased across both the Northern and Southern regions. The Northern region posted a 16% increase in new contracts, driven by strength across the Midwest, while the Southern region increased 14%, largely due to strength in the Carolinas. 

Texas and Florida sales moved higher despite some lingering market-specific challenges in places like Austin, Tampa and Sarasota. Fort Myers/Naples, FL, widely regarded as the most challenged housing market last year, could bounce back in the near future, executives noted. 

Operating amid uncertainty

Schottenstein views the current housing environment as challenging but relatively healthy by historical standards. He believes conditions are above average, but also acknowledged that high mortgage rates, broader economic uncertainty and high housing costs continue to keep buyers on the sidelines. 

Uncertainty is a major factor impacting homebuilders. For example, most analysts thought mortgage rates would steadily tick down, not move higher. Most builders didn’t foresee the war with Iran and the resulting impacts on oil, consumer sentiment and the broader economy. 

Amid these challenges, Schottenstein shared his perspective on what it means to operate in an uncertain environment. 

“Between now and the end of the year, things will happen that none of us can imagine right now. We need to make sure that we have a very strong balance sheet, that our debt levels remain low, that we focus on the best possible communities that we can buy, and keep our land ownership in balance, hopefully not owning more than a two- or three-year supply, which we don’t,” he said.