Key facts
- Meritage Homes reported Q2 adjusted earnings per share of $1.42, surpassing analyst expectations.
- The company's gross margin also exceeded forecasts.
- Net orders decreased by 9% year-over-year, with a 19% decline in absorption pace.
- Home closing revenue and closings fell by 14% and nearly 11% respectively.
- Meritage plans to shift its long-term strategy to focus on first-time move-up buyers, anticipating this segment to represent about one-third of its business from 2028 onwards.
- The company revised its full-year outlook, projecting closings and revenue to be about 5% lower than 2025 levels.
Meritage Homes, known for its focus on efficiently built entry-level homes, is signaling a significant strategic shift. While the company reported strong operational execution and exceeded earnings expectations for the second quarter of 2026, with declining construction costs and aggressive share repurchases, demand metrics showed weakness. Net orders declined 9% year-over-year, and home closings fell 14%, with the average selling price slipping to approximately $373,000. Management also revised its full-year outlook downwards.
This performance backdrop, coupled with persistent affordability challenges for first-time buyers due to high mortgage rates and stagnant home prices, has prompted Meritage to plan a gradual pivot towards first-time move-up buyers. Beginning around 2028, the company expects this segment to constitute about one-third of its business. This move suggests Meritage views the affordability issues as structural rather than cyclical.
The company's strategy adjustment acknowledges that while initiatives like shorter construction cycles and financing incentives improved operating performance, they could not overcome the fundamental lack of qualified buyers whose monthly payments are unmanageable. The shift aims to reduce dependence on a customer segment whose purchasing power has eroded.
Furthermore, Meritage's strategic reorientation may also be influenced by intensifying competition. Larger competitors like D.R. Horton, Lennar, and PulteGroup are expanding their scale, while Japanese-backed firms such as Daiwa House, Sekisui House, and Sumitomo Forestry are increasing their presence through acquisitions. In an affordability-constrained market, greater local density and the ability to deploy capital across multiple price points are becoming key competitive advantages.