Key facts
- M/I Homes is maintaining a strategy of building a high percentage of spec homes, with 78% of second-quarter orders being for spec homes.
- The company reported a record second quarter for sales, selling 2,387 homes, a 15% increase year-over-year.
- M/I Homes' gross profit margin was 22.0%, down from 24.7% a year ago, reflecting the cost of incentives.
- Mortgage rate buydowns remain the primary incentive used by M/I Homes to drive sales.
- Move-up buyers represented approximately half of M/I Homes' buyers in the last quarter.
- The Midwest and Carolinas regions showed the strongest performance for M/I Homes.
M/I Homes is bucking the trend among homebuilders by continuing to focus on building speculative homes, or 'specs,' despite a general market slowdown. While many competitors are scaling back spec inventory to protect profit margins, M/I Homes executives have consistently stated their intention to maintain this strategy. In the second quarter, 78% of the company's orders were for spec homes, a move they attribute to the current interest rate and demand environment.
This approach has contributed to strong sales volume for M/I Homes, which reported a record second quarter with 2,387 homes sold, a 15% increase year-over-year. However, this strategy necessitates significant incentives, primarily mortgage rate buydowns, which have impacted profitability. The company's gross profit margin stood at 22.0% in the second quarter, down from 24.7% a year prior.
Executives emphasize that their success with spec homes relies on a careful approach, including improving construction cycle times, concentrating inventory on desirable lots with specific floor plans, and utilizing their in-house mortgage company, M/I Financial, LLC, to tailor incentives to individual communities and buyer profiles. This subdivision-by-subdivision strategy allows them to manage risk and appeal to a diverse buyer pool, which increasingly includes move-up buyers.
Regionally, M/I Homes observed broad strength, particularly in the Midwest and Carolinas. Despite national new home sales declining year-over-year, M/I Homes saw increases in new contracts across its northern and southern regions. The company also noted that while some builders may be overly aggressive with discounts, their focus remains on well-located communities and attractive product offerings.