On Tuesday, D.R. Horton (NYSE:DHI) discussed third-quarter financial results during its earnings call. The full transcript is provided below.
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The full earnings call is available at https://www.webcaster5.com/Webcast/Page/1700/54062
Summary
D.R. Horton reported earnings per diluted share of $3.20 for Q3 2026, with consolidated pre-tax income of $1.2 billion on $9.2 billion of revenues, resulting in a pre-tax profit margin of 13.3%.
The company closed 23,983 homes, achieving a home sales gross margin of 20.7%, and generated $3.4 billion in cash from operations over the past 12 months, all returned to shareholders.
Home sales revenues were $8.7 billion, with an average closing price down 2% year-over-year at $362,000, focusing on affordability as 65% of closings were to first-time homebuyers.
D.R. Horton saw a 20% cancellation rate in Q3, up from 17% year-over-year, with gross profit margin on home sales above guidance due to lower costs.
SG&A expenses increased 8% year-over-year, and the company plans to maintain capital efficiency and disciplined operations while expecting to generate $3 billion in operating cash flow for fiscal 2026.
D.R. Horton expects Q4 consolidated revenues between $8.8 to $9.3 billion and home sales gross margins to be relatively flat from Q3.
The company anticipates FY 2026 revenues of $32.5 to $33 billion, with a tax rate of approximately 25%, and plans $2.5 billion in stock repurchases and $500 million in dividends.
Operational efficiency was highlighted, with improved cycle times and a focus on managing inventory levels based on market conditions.
D.R. Horton maintains a strong balance sheet with $6.1 billion in liquidity, with a focus on long-term value creation and adaptability to market changes.
Full Transcript
OPERATOR
Good morning and welcome to the third quarter 2026 earnings conference call for D.R. Horton, America's Builder. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. Please note this conference is being recorded. I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for D.R.
Jessica Hansen, Senior Vice President of Communications
Thank you, Paul, and good morning. Welcome to our call to discuss our financial results for the third quarter of fiscal 2026. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about factors that could lead to material changes in performance is contained in D.R. Horton's Annual Report on Form 10-K and its most recent Quarterly Report on Form 10-Q, both of which are filed with the Securities and Exchange Commission. This morning's earnings release and our supplemental data presentation can be found on our website at investor.drhorton.com, and we plan to file our 10-Q later this week after this call.
We will also post our updated investor presentation to our Investor Relations site on the Presentations section under News and Events for your reference. Now I will turn the call over to Paul Romanowski, our President and CEO.
Paul Romanowski, President and CEO
Thank you, Jessica, and good morning. I'm pleased to also be joined on this call by Mike Murray, our Chief Operating Officer, and Bill Wheat, our Chief Financial Officer. The D.R. Horton team delivered a solid third quarter highlighted by earnings per diluted share of $3.20. Consolidated pre-tax income totaled $1.2 billion on $9.2 billion of revenues, resulting in a pre-tax profit margin of 13.3%. We closed 23,983 homes during the quarter, which was at the high end of our guidance range, and achieved a home sales gross margin of 20.7%.
We remain focused on capital efficiency to generate strong operating cash flows and deliver compelling returns to our shareholders. Over the past 12 months we generated $3.4 billion of cash from operations and returned all of it to shareholders through repurchases and dividends. For the trailing twelve months ended June 30, our homebuilding pre-tax return on inventory was 17%, while our consolidated returns on equity and assets were 12.8% and 8.5%.
Our return on assets ranks in the top 20% of all S&P 500 companies for the past three, five and ten year periods, demonstrating that our disciplined, returns-focused operating model delivers sustainable results and positions us well for continued value creation. We work every day to leverage our industry-leading platform, unmatched scale, efficient operations and experienced teams to bring homeownership opportunities at affordable price points to more Americans.
Sixty-five percent of our mortgage company's closings this quarter were to first-time homebuyers. Our teams manage each community with discipline, balancing pace, price, incentives and inventory levels to meet demand and maximize returns. Affordability constraints and cautious consumer sentiment continue to impact new home demand, and our operators will continue to adjust as market conditions evolve.
Bill Wheat, Executive VP, Corporate Chief Financial Officer
Earnings for the third quarter of fiscal 2026 were $3.20 per diluted share compared to $3.36 per share in the prior year quarter. Net income for the quarter was $905 million on consolidated revenues of $9.2 billion. Home sales revenues in the third quarter totaled $8.7 billion on 23,983 homes closed, compared to $8.6 billion on 23,160 homes closed in the prior year quarter. Our average closing price was flat sequentially and down 2% year over year to $362,000.
This is below the average price of new homes in the United States by approximately $155,000, or 30%, reflecting our continued focus on affordability.
Mike Murray, Chief Operating Officer
Net sales order value in the third quarter totaled $8.4 billion on 23,084 homes, both flat with the prior year quarter. Our cancellation rate for the quarter was 20%, up from 17% in the prior year period and from 16% sequentially, within our normal historical range. The average number of active selling communities increased 2% sequentially and 9% year over year. The average price of net sales orders was $365,600, essentially flat both sequentially and year over year.
Bill Wheat, Executive VP, Corporate Chief Financial Officer
Our gross profit margin on home sales revenues in the third quarter was 20.7%, above the high end of our guidance range, reflecting lower stick-and-brick costs and slightly lower incentives than the second quarter. However, we expect incentives to remain elevated relative to historical levels. On a per square foot basis, home sales revenues and lot costs were flat sequentially, while stick-and-brick costs were down 2% year over year. Home sales revenue was down 3%, stick-and-brick costs were down 5% and lot costs were up 5%.
We currently expect our home sales gross margin to be relatively flat in the fourth quarter compared to the third quarter. Our homebuilding SG&A expenses in the third quarter increased 8% compared to last year, and SG&A as a percentage of revenues was 8.3%, up from 7.8% in the prior year quarter. We remain focused on managing our platform with discipline to gain market share efficiently, and we expect to return to positive SG&A operating leverage when revenue growth resumes and our average sales price and community absorption rates stabilize.
Mike Murray, Chief Operating Officer
We started 23,900 homes in the third quarter, and we ended the quarter with 38,000 homes in inventory, down 1% both sequentially and year over year. 23,300 of our homes at June 30th were unsold. 7,600 of our total unsold homes were completed, of which 600 have been completed for more than six months. For homes closed in the third quarter, our median cycle time from home start to home close improved by roughly three weeks year over year. Our improved cycle times enable us to hold less housing inventory and turn it more efficiently.
We expect starts in the fourth quarter to be lower than the third quarter, and we will continue to manage our inventory levels and starts pace based on market conditions. Our homebuilding lot position at June 30th consisted of approximately 570,000 lots, of which 22% were owned and 78% were controlled through purchase contracts. We continue to actively manage our investments in lots, land and development based on market conditions. We remain focused on relationships with land developers across the country so we can build more homes on lots developed by others.
This approach enhances our capital efficiency, returns and operational flexibility. Our owned lot position is down 13% from a year ago, and in the third quarter, 67% of the homes we closed were on lots developed by either Forestar or third parties, up from 66% in the prior year quarter. During the third quarter, our homebuilding investments in lots, land and development totaled $2.1 billion, including $1.5 billion for finished lots, $520 million for land development, and $75 million for land acquisition.
Paul Romanowski, President and CEO
In the third quarter, our rental operations generated $31 million of pre-tax income on $266 million of revenues from the sale of 601 single-family rental homes and 339 multifamily rental units. At June 30th, our rental property inventory totaled $3 billion, including $2.7 billion of multifamily rental properties and $321 million of single-family rental properties. We remain focused on improving the capital efficiency and returns of our rental operations, and we currently expect our rental property inventory to remain around $3 billion.
Turning to our financial services operations, pre-tax income for the third quarter was $70 million on $221 million of revenues, resulting in a pre-tax profit margin of 31.9%.
Mike Murray, Chief Operating Officer
Forestar, our majority-owned residential lot development company, reported third quarter revenues of $407 million on 3,659 lots sold with pre-tax income of $49 million. At June 30, Forestar's owned and controlled lot position totaled 92,000 lots. Sixty-six percent of Forestar's owned lots are under contract with or subject to a right of first offer to D.R. Horton. During the third quarter we purchased $360 million of finished lots from Forestar. Forestar's strong, separately capitalized balance sheet, national operating platform and lot supply position them well to provide essential finished lots to the homebuilding industry and to continue aggregating significant market share over the next several years.
Bill Wheat, Executive VP, Corporate Chief Financial Officer
Our capital allocation strategy remains disciplined and balanced, supporting an operating platform that delivers attractive returns and substantial operating cash flows. We maintain a strong balance sheet with low leverage and healthy liquidity, providing significant financial flexibility to adapt to changing market conditions and opportunities. At June 30, we had $6.1 billion of consolidated liquidity, including $2.1 billion of cash and $4 billion of available capacity on our credit facilities.
Total debt at quarter end was $7.1 billion, with $600 million of homebuilding senior notes maturing over the next 12 months. Our consolidated leverage at June 30 was 23%, and we continue to target leverage of around 20% over the long term. During the first nine months of the year, homebuilding cash provided by operations totaled $1.3 billion and consolidated cash provided by operations was $881 million. During the third quarter, we paid cash dividends of $0.45 per share totaling $127 million, and our board has declared a quarterly dividend at the same level to be paid in August.
We also repurchased 4.2 million shares of common stock for $616 million during the quarter, reducing our outstanding share count by 6% compared to a year ago. At quarter end, our stockholders' equity was $23.8 billion, down 1% from a year ago, while book value per share increased 5% from a year ago to $84.85.
Jessica Hansen, Senior Vice President of Communications
Looking ahead to the fourth quarter, we currently expect consolidated revenues to be in the range of $8.8 to $9.3 billion, with homes closed by our homebuilding operations to be in the range of 22,500 to 23,000 homes. We expect our home sales gross margin for the fourth quarter to be in the range of 20.5% to 21% and our consolidated pre-tax profit margin to be between 12.3% and 12.8%. For the full year of fiscal 2026, we now expect consolidated revenues of approximately $32.5 to $33 billion and homes closed by our homebuilding operations of 83,800 to 84,300 homes.
We now forecast an income tax rate for fiscal 2026 of approximately 25% and still expect operating cash flow of at least $3 billion, common stock repurchases of approximately $2.5 billion and dividend payments of around $500 million.
Paul Romanowski, President and CEO
In closing, our results and positioning reflect the strength of our experienced teams, industry-leading market share, broad geographic footprint and focus on delivering quality homes at affordable price points. These are key components of our operating platform that support our ability to grow market share, generate substantial operating cash flows and consistently return capital to our shareholders. We recognize the current volatility and uncertainty in the broader economy and we will Remain agile and disciplined as we focus on enhancing the long-term value of D.R. Horton. Finally, I want to thank the entire D.R. Horton family, our employees, land developers, trade partners, vendors and real estate agents for your continued dedication and hard work. We remain committed to continuing to improve our operations and creating homeownership opportunities for even more individuals and families. This concludes our prepared remarks. We will now host questions.
OPERATOR
Thank you. At this time, we'll be conducting a question-and-answer session. In the interest of time, we ask that participants limit themselves to one question and one follow-up on today's call. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment please, while we poll for questions. And the first question today is coming from John Lavallo from UBS. John, your line is live.
John Lavallo, Analyst at UBS
Good morning, guys, and thanks for taking my questions. The first one is that stabilization is something that we've heard numerous times in our channel checks, despite what's been continued volatility from not only an interest rate but a geopolitical standpoint. Would you agree with that assessment, and do you think that we're getting to a point where we're starting to form a bottom here?
Paul Romanowski, President and CEO
I would say that when looking at our sales, our sales were relatively in line with normal seasonality. They were a little softer post our call in April and still see plenty of buyers out there in our sales offices as we travel and in front of people. It's, you know, just needing to see them be a little more confident in the overall economy and their ability to move forward with a purchase today.
John Lavallo, Analyst at UBS
Understood. And you guys, you know, slightly pulled back, I think about 3% on your full-year deliveries, despite being within actually towards the upper end of the third quarter range and with flattish orders on a year-over-year basis. So I guess is the trimmed outlook predominantly driven by just uncertainty in consumer confidence and geopolitics as we move into the fourth quarter, is it a function of maybe lower than internally expected orders in the third quarter, or are you just kind of moderating growth to maintain margin?
Bill Wheat, Executive VP, Corporate Chief Financial Officer
It was lower than our internal expected sales rate. We really needed to see a little better than normal seasonality in the quarter and felt like we could see that at the beginning of the quarter. That demand softened a little bit as we went through the quarter and hence the reduction in our annual guide. But to your point, John, happy with the trade-off of what we were able to achieve from a gross margin perspective at the lower sales volume level?
John Lavallo, Analyst at UBS
Yeah, 100%. Thank you, guys.
OPERATOR
Thank you. The next question will be from Stephen Kim from Evercore. Steven, your line is live.
Stephen Kim, Analyst at Evercore ISI
Yeah, thanks very much, guys. Impressive results in what I consider to be a pretty tough environment. But that's kind of related to my first question. When you think about the current environment and you look at your outlook for, let's say, long-term through-cycle returns, how do these current results stack up relative to that? Do you regard your current returns as about average longer term, or if not, what are the elements that you expect might push your returns higher or lower over the longer term?
Bill Wheat, Executive VP, Corporate Chief Financial Officer
Steve, our current returns are lower than where we expect them to be. Longer term we have our margins, while in the longer-term historic range, we believe our longer-term stabilized margin should be a bit higher than this. Our operating margin, including our SG&A leverage, should be better than this over time when we're seeing some more consistent growth. We have not seen growth on our top line for a few years here and so we're always positioning for growth.
And so with a little better operating leverage, and frankly, I think we still feel like we have some opportunity to improve our capital efficiency in our homes and inventory and our land. So we continue to focus on that. So overall, we would expect our returns on our capital, whether it's ROA, ROE, both to be higher longer term than they are right now.
Stephen Kim, Analyst at Evercore ISI
Well, that's encouraging and appreciate that color, Bill. Second question kind of relates to scale. And I think you talked about when growth returns, that's when you think SG&A could be leveraged. And that makes sense. However, I was curious if you could contextualize that, given the fact that we've seen a lot of consolidation in the industry from competitors, both foreign and domestic. I'm wondering if you can comment on how you think about your opportunity set from a scale perspective.
Particularly, I know you've been hard at work generating a lot of economies of scale and your volume is kind of stabilized here, but you still talk about future growth. So I'm curious, can you talk about what the importance of scale for you to achieve the efficiencies that you desire? Should we be thinking there's another sort of step function higher in volume that could unlock some of these opportunities? Or maybe you could think about it a little differently.
You could walk us through that.
Paul Romanowski, President and CEO
Thanks, Steve. When you look at our scale today, or at our revenues and absorption being relatively flat over the last couple years, that's while we have been expanding our footprint. We've opened 30 or so markets over the last five years and we lack some leverage on our SG&A because of creating that footprint. But I think that that footprint geographically puts us in a great position. As we see demand rebound a little bit, we see some strengthening in consumer confidence and demand.
We feel we're in a great position to gain scale nationally. We also feel very good about our positioning at a local level. That scale is still very important to us. We see the benefits of it, believe in it, talk about it, and still have our operators in a position to maintain their position in the market and grow when the opportunity is there for us. As a reminder, we're only number one only in half of the markets we operate in today. So we still have a lot of opportunity to continue to grow our share locally across the country.
Stephen Kim, Analyst at Evercore ISI
That's great perspective. Appreciate that, guys.
OPERATOR
Thank you. The next question will be from Alan Ratner from Zelman. Alan, your line is live.
Alan Ratner, Analyst at Zelman
Hey, guys, good morning. Thanks for the detail so far and taking my question. Obviously, very impressive results on the gross margin. It looks like a lot of that has been driven by really strong cost controls. And I'm curious, as you think about the cost environment today. Obviously you've done a great job of pushing back on suppliers and trades and driving down costs where you can. Where do you think you are in that process? Because as we look at at least the announcements on Canadian concrete, I'm not sure how big of a piece of your business that is.
Fuel remains elevated. So do you feel like there's still further room to drive costs lower or is there risk over the next handful of quarters that that reverses given all of those headwinds I just mentioned?
Mike Murray, Chief Operating Officer
We lost a little bit of your question, Alan, but I think I got the gist of it. We've seen good improvement in our cost containment efforts in comparison to the prior year, but it's an ongoing battle and there is certainly some headwind out there right now with some fuel cost increases. I don't believe the Canadian recently announced Canadian tariff changes are going to have a material impact on D.R. Horton and our footprint. But I'm looking for us to hang onto, perhaps squeeze out a little additional cost improvements in future quarters.
But it's more challenging now, just as you get closer to an optimal state to get significant improvement going forward.
Alan Ratner, Analyst at Zelman
Thanks very much.
OPERATOR
Thank you. The next question will be from Matthew Bouley from Barclays. Matthew, your line is live.
Matthew Bouley, Analyst at Barclays
Morning, everyone. Thanks for taking the question. Wanted to ask on incentives. I think you said the incentives were slightly lower quarter over quarter. You mentioned demand softened a bit during the quarter. It looked like finished spec came up slightly and obviously interest rates are where they are. It seems like obviously you're still guiding to that flattish sequential gross margin going forward. So maybe just kind of unpack what's assumed around incentives there.
And why wouldn't there be kind of an incremental incentive headwind going forward?
Bill Wheat, Executive VP, Corporate Chief Financial Officer
Well, in the current environment we saw a slight improvement in incentives, but as Paul mentioned, it was a bit softer later in the quarter. So we do expect incentives to remain elevated. And as Mike discussed, we may still see some stick-and-brick savings, but we have achieved a lot of what we expect to achieve today. So really where we see where we are is a relatively stable outlook going into the next quarter. Obviously a lot of our sales and our closings in the quarter occur in the same quarter.
So there's still some uncertainty around what may be required going forward. But right now the visibility we have points to a relatively stable margin going into Q4.
Matthew Bouley, Analyst at Barclays
Okay, got it. Thank you for that. And then secondly, stepping back, wanted to ask about your exposure to the first-time buyer. I think it looks like you're around two-thirds today, first-time buyer. And we can go back any number of years. Once upon a time that was half the business, maybe even less than half the business. So it's been a very long steady mix towards that first-time buyer. Given the state of the first-time buyer today, would you say that the kind of two-thirds of the business you're at now maybe stabilizes?
Do you expect it to actually continue to move higher if you look at it as we are the answer to the affordable needs of the country today? Or would you actually look at it and say, you know what, maybe we actually do want to mix a little bit back towards that kind of first-time move-up buyer? So just curious on how you're positioning the business from that perspective on a multi-year timeframe. Thank you.
Paul Romanowski, President and CEO
The positioning of our business today lends itself to still seeing a significant portion of our buyers, I think in that two-thirds range, as first-time homebuyers. There's some opportunity to go up some. We'll certainly take it. If we see more buyers out there, we're happy every day to sell them a home. That said, as we penetrate markets, we also take the opportunity to move up market a little bit. So I think blending that at a community level and at a division level, our operators are charged every day to find the market, go meet that market.
But I would expect us to see a first-time homebuyer segment relatively consistent with what we see this quarter.
Matthew Bouley, Analyst at Barclays
All right, well, thank you, Paul. Good luck, guys.
OPERATOR
Thank you. The next question will be from Eric Bossard from Cleveland Research. Eric, your line is live.
Eric Bossard, Analyst at Cleveland Research
Good morning. The stick and brick down 5%. Curious where you're seeing that, if labor is a meaningful piece of that, and then the path forward you expect from here and how this is influencing or contributing to gross margin.
Mike Murray, Chief Operating Officer
Sure, Eric. The majority of the savings we're seeing is still on framing, which would be inclusive of labor. As I think we've talked about previously, we pay for a lot of things turnkey, so we can't split it out for you perfectly, labor versus materials. Framing was our biggest cost category of savings. Very positively though, across all of our major cost categories, we saw a decline in terms of our costs on closings in the third quarter. And so I think we expect that to hold at least into Q4, maybe into '27.
We start to have a slight lumber headwind again with where lumber prices have gone. But we feel good for at least the next quarter or so.
Eric Bossard, Analyst at Cleveland Research
And then in terms of how that is supporting gross margin or supporting the ability to increase incentives, how are you thinking about that or planning that or how is that playing out? And then secondly, you were relatively clear that in the quarter, a little less volume, a little bit more margin. Is this the path forward strategically? I know it moves around, but is that kind of plan A from here?
Mike Murray, Chief Operating Officer
Incentives in the cost structure, the stick and brick cost structure, and incentives in our mind are kind of separate things. We think about the home we want to deliver on the lot, try to build it as efficiently as possible, and then look to go to market with the appropriate price and incentives that stimulate demand in the marketplace to get the pace we need to drive the return we need, and then manage the return on the basis of trying to pull back or increase incentives to stimulate demand or to improve margin.
Two separate parts of the equation for us. That was our plan this past quarter, and we're going to respond to the market based on what we see quarter to quarter, month to month, really week to week. So we're managing our business, I think, very efficiently, responding to the market as it comes to us. Our operators did a great job of delivering on the quarter in terms of our guidance in closings and in margin. We did make the decision to hold margin a little more than push into the units and hence the reduction in our guide for the year.
But we're going to continue to manage the business as efficiently as we can to drive the best returns that we have at a community level.
Eric Bossard, Analyst at Cleveland Research
Thank you.
OPERATOR
Thank you. The next question will be from Sam Reed from Wells Fargo. Sam, your line is live.
Sam Reed, Analyst at Wells Fargo
Thanks so much everyone, and good quarter. You gave a lot of helpful color on lot cost inflation. I believe it was up 5% year over year in the third quarter. Curious as to what's embedded for lot cost inflation in the fourth quarter. And then contextualize where you see line item potentially tracking into next year. Whether you expect to get some help just from slack in the horizontal supply chain, or whether there could be some implications from higher oil costs on some of those horizontal lot inputs. Thanks.
Mike Murray, Chief Operating Officer
We expect to see similar lot cost appreciation, although we're seeing some savings and some benefit in the development cost that won't come through for several quarters well into 27 and 28. Anything that we are seeing today. So expect to see similar level of lot cost inflation as we head into the fourth quarter.
Sam Reed, Analyst at Wells Fargo
That's helpful. And maybe let's switch gears and quickly touch on SG&A. There was a step up in SG&A spend on a dollar basis. Realize there was probably some community count embedded in that, but just if you could contextualize some of the levers behind the higher year over year homebuilding SG&A dollars just so we can understand how we should be thinking about that both for the quarter and also for FQ4. Thanks.
Bill Wheat, Executive VP, Corporate Chief Financial Officer
Yes, Sam, the primary driver of the SG&A has been our community count increase. Our active communities were up 9% year over year. Our total dollar spend of SG&A was up 8%, so relatively in line there. And that's been a trend for the last two to three years as we've added 30 markets over the last several years. So. But yet our volume, so our absorptions per community have declined a bit and so our overall revenues have not increased, and we've been adjusting our ASPs to meet the market as well.
So we have had some deleveraging over the last couple of years. But at the point at which we do begin to see stabilization in pricing and absorption pace, we would expect then to be in position to get forward operating leverage on SG&A. But right now we're in a position where we built the infrastructure and we need to see the growth coming off of that in the future.
Sam Reed, Analyst at Wells Fargo
Thanks so much. I appreciate it.
OPERATOR
Thank you. The next question will be from Ryan Gilbert from BTIG. Ryan, your line is live.
Ryan Gilbert, Analyst at BTIG
Hi, thanks. Good morning everyone. I wanted to circle back on the finished spec inventory question. It does look like finished specs are up around 2,100 homes sequentially. I think that's more than the typical sequential increase. Is that more than you expected? Is that tied to some of the softer results in I guess May and June versus what you saw in mid April? And then how should we think about potential gross margin implications for right-sizing the spec count?
Right, okay. Yep, that makes sense. Thanks. And then second question is on community count growth. I think you've talked in the past about that growth rate decelerating to kind of a mid single digit rate at some point in time. I'm just wondering, given the continued declines in the controlled lot count, should we recalibrate that mid single digit growth rate expectation or do you think you can continue to grow community count despite lower controlled lots?
Mike Murray, Chief Operating Officer
So we look at the spec counts. It's a function of a few things. One is some improvements that we continue to see in our construction cycle times. We're finishing homes faster. At the same time our average selling communities are up 9%. So that's up more than those completed specs are up. Therefore we have fewer per community at this time. And then the other part to the forward margin piece, those completed specs are very recently completed. You can look at our aged specs and they're actually down a few hundred units year over year.
And so we feel pretty good about going into the fourth quarter able to provide a stable margin guidance.
Bill Wheat, Executive VP, Corporate Chief Financial Officer
As we said in the scripted part, we do expect our Q4 starts to be lower than Q3 and we'll continue to adjust our starts accordingly based on the demand that we're seeing. Of our total completed specs, only 600 have been completed and unsold for greater than six months, and that's actually down from 800 sequentially. So to Mike's point, the vast majority of our completed specs are very fresh.
Mike Murray, Chief Operating Officer
Yeah, I think that would still be our base case over the longer term, is that our goal would be to have a roughly mid single digit community count growth. It can be a little bit choppy. It actually has been sticky at the low double digits for quite some time. We did see a slight moderation to a 9% increase on a year over year basis this quarter and 2% sequentially. So did start to see it trend down modestly and would still expect it to trend down to mid single digit over time.
Ryan Gilbert, Analyst at BTIG
Okay, great. Thanks so much.
OPERATOR
Thank you. The next question will be from Anthony Pettinari from Citi. Anthony, your line is live.
Anthony Pettinari, Analyst at Citi
Good morning. I was wondering if you could talk about any meaningful regional variation you're seeing in terms of demand and any MSAs that stand out as being stronger or weaker. And I guess related question, you know, we've heard about some MSAs with tech exposure being strong, you know, like Bay Area, some others like Seattle being weak. Is there anything you're sort of observing there? It's kind of sometimes hard to tell whether that's a plus or a minus.
Paul Romanowski, President and CEO
I think what you just mentioned is consistent with what we're seeing and fairly consistent with what we talked about last quarter on the call, is that across really what we show as our North operating area, which is the Mid-Atlantic states, the Ohio Valley, the Midwest, seeing relative strength in most of those markets, a little more weakness out in the Northwest, and especially as you look up into Seattle, where we've seen some of the shift in the software jobs and more layoffs and some headwinds to demand in those markets.
And that's pretty consistent with what we've seen through this quarter.
Anthony Pettinari, Analyst at Citi
Okay, okay. And then any other regional variations that you'd highlight in terms of, I don't know, Sunbelt or Northeast or
Paul Romanowski, President and CEO
The Florida market seems to be performing pretty consistently at this point in time and some of the same across the Southeast. So it's been pretty encouraging.
Anthony Pettinari, Analyst at Citi
Great. And then I guess one last one. Stick and brick costs down year over year. You've taken down cycle times year over year. Is there sort of a theoretical limit or floor for cycle times, just generally? How should we think about that?
Mike Murray, Chief Operating Officer
You'll never hear us say there's a floor in terms of our ability to run our business more efficiently. That said, the reduction has come more from complete to close than it has from our start to complete. In other words, in the construction cycle time we've come down maybe a day, I think sequentially. And most of that reduction has been from complete to close. So our focus in the field and our operations in our communities is to sell the homes earlier in the process.
We're building homes at the most efficient rate that we have in the history of the company. And so we need to get back to selling homes earlier in the process. That will help reduce that overall start to close cycle time. And we do think there's some room to bring that down further.
Anthony Pettinari, Analyst at Citi
Understood. I'll turn it over.
OPERATOR
Thank you. The next question will be from Rafe Jadrac from Bank of America. Rafe, your line is live.
Rafe Jadrac, Analyst at Bank of America
Hi, good morning. Thanks for taking my question first. Can you remind us the lag between when lumber prices move and when it shows up in your gross margin for delivered homes? And then the second question, just your operator has been pretty nimble sort of balancing margin and volume and sort of coming earlier this year, it seemed like there was more of a push into volume in the first half and there's been an adjustment here. Can you just talk about maybe what you're seeing out there that kind of caused that shift?
Is it where 3Q orders came in? Is it the outlook for the fourth quarter? And then what would it take to get you to shift back to more aggressive volume given the growth ambitions you have longer term and the strong lot pipeline?
Bill Wheat, Executive VP, Corporate Chief Financial Officer
It usually takes a few quarters for that to come through based upon how we're kind of priced to an average price at the point of purchase order. And then those homes have to go through the production process to be sold and closed to only show up in margin. So it's usually a few. So two to three quarters is fair. Two to three quarters.
Mike Murray, Chief Operating Officer
Our efficiency and reduced cycle times have allowed us to respond inter-quarter to those changes in demand. And I think that's really what you saw with our second quarter, where we saw strong early selling season, allowed us—our spring selling season—allowed us to increase our starts pace, respond to that, and then we adjust in kind. And I think throughout this past quarter we saw the market soften a little bit, and that's why we're anticipating to see our starts rate in the fourth quarter be below what it was this past quarter.
So really it's our operators, to your point, being nimble, responding to the market, and being out there on the ground every day responding to the market that comes at them.
Rafe Jadrac, Analyst at Bank of America
Okay. Thank you. That's very helpful.
OPERATOR
Thank you. The next question will be from Trevor Allanson from Wolfe Research. Trevor, your line is live.
Trevor Allanson, Analyst at Wolfe Research
Hi, good morning. Thank you for taking my questions. First question is back on incentives and your rate buy-down program. With rates moving higher through the quarter, have you made any adjustments to those programs? And if so, can you talk about what rate you were buying down to on average currently and how does that compare to recent quarters?
Bill Wheat, Executive VP, Corporate Chief Financial Officer
It was actually the first quarter that we did see our rate in backlog tick up because of that move in rates. So we saw our average buy-down decrease slightly to 1.6% from 1.7% in the second quarter. And the mortgage rate for our buyers in backlog utilizing our mortgage company at June 30th was 4.9% against, call it, a rough market rate of about 6.5%. So we're still in the market pretty consistently with anywhere from, call it, 4.99% to 5.5% depending on mortgage product.
We have an array of offerings, so you'll find some things outside of that band, but that'd be the largest piece of our offering today.
UNKNOWN Analyst
Okay, thank you for that, Jessica. And then second question, last quarter you talked about selling specs earlier in the construction cycle, expecting that to provide some gross margin benefits. Can you quantify or at least talk about any of the benefit you saw in 3Q from that process? And should we expect incremental tailwinds from selling earlier in the construction process in 4Q?
Jessica Hansen, Senior Vice President of Communications
Thanks. We definitely did see probably on those closings a lower incentive level having to be offered. At the same time, it provides a much greater efficiency to the turn of the inventory in the selling process earlier so that as soon as the construction process is complete, the buyer has gone through the mortgage qualification process and they're excited and ready to move into their home. Certainly more room for improvement though. We saw a step up in those closings this quarter, but it's not where we ultimately want it to be.
UNKNOWN Analyst
Thank you for all the color and good luck moving forward. Thank you.
OPERATOR
Thank you. The next question will be from Susan McLauri from Goldman Sachs. Susan, your line is live.
Susan McLauri, Analyst at Goldman Sachs
Thank you. Good morning, everyone. My first question is on the rental side of the market. Can you talk about what you're seeing there, especially post the housing legislation that passed and how you're thinking about the outlook in terms of that part of the business?
Mike Murray, Chief Operating Officer
We certainly saw, until it was settled, some uncertainty in that market, a pullback on the single-family-for-rent purchasers. We have seen them out there with interest. Haven't seen a significant shift as of yet. It's fairly new in terms of that legislation being activated. But feel good about our position there. Majority of what we're selling is really on a forward sale basis. And so we have those opportunities and continuing to work with the buyers that have been with us the future and look for new buyers for that segment.
Susan McLauri, Analyst at Goldman Sachs
Okay, that's helpful. And then, you know, thinking about the priorities of capital allocation. You reiterated the guide for the two and a half billion of buybacks. I guess considering though where you are already coming into this quarter and the seasonality of the cash flows, how should we think about the potential for some upside there? What are you watching for to get more active in that? And can you talk about any other priorities in terms of capital allocation?
Bill Wheat, Executive VP, Corporate Chief Financial Officer
You know, our share repurchases and dividends are governed by our cash flow. And right now our visibility to cash flow is still to meet or exceed $3 billion. And so our year-to-date spend on repurchases has been in excess of our cash flow year to date. Obviously, we expect a strong cash flow performance in Q4 to get that more in line. So right now we don't really have visibility to any upside to any large extent on our current year repurchases, but we will monitor cash flow as we move through the quarter and adjust accordingly.
Susan McLauri, Analyst at Goldman Sachs
Okay, thank you. Good luck.
OPERATOR
Thank you. The next question will be from Mike Dahl from RBC Capital Markets. Mike, your line is live.
Mike Dahl, Analyst at RBC Capital Markets
Morning. Thanks for taking my questions. Maybe to expand on Susan's question, can you just broaden out and give us your perspective now that the road to housing has officially passed and you know all the final details. Give us your view on kind of puts and takes and whether or not anything really is impactful. Aside from what you just commented on the SFR BTR dynamics,
Paul Romanowski, President and CEO
I think one of the biggest impacts will be on the SFR. It's settled down for institutional investors, their ability to operate in their business without required sale. I think that is certainly a benefit. We're encouraged by the fact that there's still a lot of focus on affordability and on deregulation. I think that has the biggest long-term impact or opportunity at the state level. And then really it has to come down to a local level, municipal and county level, where we see some deregulation opportunity.
We're hopeful for that. We see more of that discussion today throughout our communities. But don't expect to see any significant shift or change in either demand or supply in the near term from what was just passed.
Mike Dahl, Analyst at RBC Capital Markets
Got it. Okay. Appreciate that. And then just shifting gears back to the land dynamic. I mean, your land acquisition spend in particular has been coming down and obviously that's kind of alongside the lot count. But can you just give us your perspective on the land market right now and how you're managing that? It seems like for the time being, even as you enter new markets and try to build those positions, you're comfortable with kind of moving to the sidelines a bit on acquisition or shrinking your op count a little.
But just curious to get kind of your updated views on how that market's evolving.
Mike Murray, Chief Operating Officer
We're certainly trying to have our land acquisition efforts in line with what we see as market demand right now. And there are some markets where we've been able to rework some of our lot position, lot portfolio, working with our developers, been very pleased with their partnership and working through some changes along those lines. And at the same time, there are still opportunities we see where it still makes great sense to go out and tie up new positions.
We're probably buying less raw dirt in the most recent quarters than we have in a while and we'll probably continue that trend a bit right now because there's a fair number of lots that are in the pipeline, both under control by us and that are available from some of our development partners who are looking. Our focus is to continue to manage it more efficiently and own fewer lots where we can if we're still in position to be in control of our start pace, which will govern our revenue.
So we have about 1.5 years of owned land today, which is down from 1.6 years sequentially and 1.7 years year over year. But more importantly, we control 6.7 years. So we're in a great position even with our lot count coming down a little bit. We're pleased that our owned lot count has come down, but we still control on the seven years of land overall.
Mike Dahl, Analyst at RBC Capital Markets
Great. Appreciate that. Thanks.
OPERATOR
Thank you. The next question will be from Buck Horn from Raymond James. Buck, your line is live.
Buck Horn, Analyst at Raymond James
Hey, thanks. Good morning. I was just wondering if you can go back to the inter-quarter demand trends a little bit just as it relates to the can rate. I'm just wondering, as demand kind of seasonally softened into May and June, I was wondering if you saw, was the can rate also the increase there back-end loaded or was it more of a slowdown in kind of the incoming gross orders, or some combination of both?
Jessica Hansen, Senior Vice President of Communications
Yeah, it was a little bit of both. As we saw a bit of softening mid-quarter and in the later part of the quarter, our can rate did tick up alongside that. And so that was something that our operators were adjusting through the quarter. Even our exit rate-wise for the quarter was still well within our normal historical range.
Buck Horn, Analyst at Raymond James
Awesome. That's helpful, Jessica. Appreciate that. And what were the largest reasons for cancellation in the quarter? Was it the ability to qualify or just cold feet or any other reasons?
Jessica Hansen, Senior Vice President of Communications
Yeah, it's still largely qualification as it historically has been. We have a general, you know, lack of confidence. We'd love to see a bit more confidence among our buyers today. But qualification is still, you know, largely the biggest reason for cans.
Buck Horn, Analyst at Raymond James
Got it. Thanks, guys. Appreciate it.
OPERATOR
Thank you. The next question will be from Kenneth Zenor from Seaport Research. Kenneth, your line is live.
Kenneth Zenor, Analyst at Seaport Research
Good morning, everybody. Hello. Just checking your gross margin beat. Can you talk to—I mean, your regional segment results are very consistent versus other builders. So what kind of led to the modest beat that you guys had? Was it regional mix? Can you talk to these newer 30 markets, which you said they'll, you know, have higher SG&A—do they also have higher gross margins? Thank you.
Mike Murray, Chief Operating Officer
No. Typically a new market wouldn't have higher-than-normal gross margins. It takes a little while for them to live into that on both the gross margin and SG&A front. So that'd be a little bit of a drag compared to our company averages. I think mostly that margin beat is the efforts in cost reduction, and it's stick and brick, and it's seeing those come through now with the efforts that our operators have been focused on for some time. And that's largely where we saw, I think, the difference in the margin beat—slight reduction in incentives as well as we adjusted throughout the market and took the position to hold on to a little bit of margin instead of leaning into absorption.
Kenneth Zenor, Analyst at Seaport Research
Okay. And then you talked about 4Q starts being below 3Q, which is not—but it's not heroic. Last year your starts were 14,500. Is that the range that we should be thinking about given that occurred last year? I'm just trying to think about your base of inventory units, which historically you said are ending inventory times two. That was your long-term revenue outlook. Now you're a little more efficient, so it could be higher than that. But I'm trying to think where you're bringing starts in 4Q and inventory for your '27 positioning.
Mike Murray, Chief Operating Officer
Certainly seeing 4Q starts inside of 3Q. And while that's not heroic, it will be more starts probably than we had last year in the fourth quarter that was deliberately suppressed to try to bring inventory back in line. Largely, it's going to be dependent upon the sales environment we see through the quarter. And positioning for our September 30th inventory. You know, a two-times turn had been a historical norm for us. Today we're looking in excess of that, you know, and our internal goals are to get that to three.
And we'll be this year, but we'll be close, really.
Kenneth Zenor, Analyst at Seaport Research
Okay, do appreciate it.
OPERATOR
Thank you. Thank you. The next question will be from Jade Rahmani from KBW. Jade, your line is live.
Jade Rahmani, Analyst at KBW
Thank you very much. Just the multifamily inventory, given where rates are and cap rates in the market as well as supply overhang, what's the outlook for stabilizing and moving that inventory?
Bill Wheat, Executive VP, Corporate Chief Financial Officer
We're right at about $3 billion in terms of our total and that's split largely between apartments at $2.7 [billion] and around $320 million in our build-for-rent. Our focus on the build-for-rent has really been on a forward sale, so we don't need to grow that much other than if we see demand for that, then we'll be able to build into it. And we're looking to hold that inventory stable at about that $3 billion mark. And then the multifamily, we do expect to close a few more units in Q4, so expect that inventory to come down a bit in Q4 and then in aggregate keep the overall rental inventory—multi and single—within the $3 billion range.
So a bit coming down in the short term though.
Jade Rahmani, Analyst at KBW
Thank you. And then on the technology side, I was wondering if there's anything in off-site manufacturing or AI you're seeing that looks promising. The housing legislation included some manufacturing housing incentives and maybe that's an area of potential synergy. Just curious about your thoughts there.
Mike Murray, Chief Operating Officer
We continue to evaluate opportunities to deliver the housing more efficiently, looking at a wide number of off-site manufacturing processes and players that are trying to crack the code there. We haven't yet found anything that's replacing the way we've done it for a long time that can do it more efficiently. But we are continually looking and evaluating.
Jade Rahmani, Analyst at KBW
Thank you.
OPERATOR
Thank you. The next question will be from Jay McCandis from Citizens. Jay, your line is live.
Jay McCandis, Analyst at Citizens
Good morning, everyone. So my first question, nice to see the backlog price up year on year for the first time in several quarters, I guess. Is that just a function of mix or were you guys able to find some pricing power in some of these markets?
Mike Murray, Chief Operating Officer
I think that's largely a function of mix. We do have pricing power in some markets, and when that opportunity is there, our operators are going to take it at the community level. Some of that slight reduction in incentives as well will, if it's in our rate buy-downs, add back to the revenue column.
Jay McCandis, Analyst at Citizens
And then the second question, just kind of, you know, looking at July and rates have been moving up pretty aggressively, I guess. What have you seen so far on traffic and demand, and also as part of that, what are you seeing from competitive inventories, especially on the entry-level and first-time buyer side?
Mike Murray, Chief Operating Officer
I don't know we've seen much change in inventories. I think that the industry as a whole has been relatively disciplined in trying to measure that towards demand. Still early in July for us to forecast, and we're responding daily in the field and at point of sale to meet what's in front of us.
Jay McCandis, Analyst at Citizens
Got it. All right, thank you.
Mike Murray, Chief Operating Officer
Thank you.
OPERATOR
And the next question will be from Alex Barron from Housing Research Center. Alex, your line is live.
Alex Barron, Analyst at Housing Research Center
Yes, thank you. I'm sorry if this was asked in a different manner, but on the single-family rental side, it seems the business has sort of been winding down. Is that the basic idea of what's going to happen, or is this going to come back at some point?
Mike Murray, Chief Operating Officer
We have taken the business from one in which we developed the entire neighborhood, stabilized the neighborhood, and sold it as a fully stabilized rental property to one in which we're working with those institutional and individual owners of those properties to basically deliver units to them as we complete construction. So they're responsible for the lease-up, the stabilization process of it. We do the site identification, acquisition, development.
They then do the lease-up and stabilization process and ownership. And there was probably a little bit of a gap while there was a lot of uncertainty until we knew how the actual act was going to come out. And so I think those buyers now can be more comfortable to move forward. So we certainly are not winding that business down and could do more of it going forward depending on investor appetite. And it's a more efficient model, so we will operate it with a lower inventory balance than we had historically in the SFR business.
Alex Barron, Analyst at Housing Research Center
So will it still show like on-balance-sheet type business where you report revenues and closings and stuff, or is it more of a balance sheet or JV or something?
Mike Murray, Chief Operating Officer
Same. Not a JV. Selling homes to third parties.
Alex Barron, Analyst at Housing Research Center
Okay. And on the multifamily side, it seems like you guys still have a lot of assets committed, but it doesn't seem like there's too many revenues coming out of it lately. So can you expand on, you know, what the future looks like?
Bill Wheat, Executive VP, Corporate Chief Financial Officer
We do expect an increase in revenues in Q4 from multifamily business. There are a number of projects that are under contract, are completed, are stabilized. And so we've got a little bit of a back-end weighted revenue base here for fiscal 26. And as we look into fiscal 27, we do have an active pipeline that is working and expect to continue to add to that over time. But the revenues have been a bit inconsistent quarter to quarter.
Alex Barron, Analyst at Housing Research Center
Okay. Appreciate it. Thank you guys.
Bill Wheat, Executive VP, Corporate Chief Financial Officer
Thanks, Alex.
OPERATOR
Thank you. And that does conclude today's Q and A session. I will now hand the call over to Paul Romanowski for closing remarks.
Paul Romanowski, President and CEO
Thank you. We appreciate everyone joining us today, and we look forward to sharing our fourth quarter and full year results with you on Thursday, October 29th. And to the entire D.R. Horton team, congratulations on a solid third quarter. Thank you for all that you do.
OPERATOR
Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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