Housing affordability is stretched so thin that D.R. Horton is leaning even harder on 3.99% mortgage rate buydowns

D.R. Horton, America's largest homebuilder, is heavily relying on mortgage rate buydowns to maintain sales volume in an affordability-challenged housing market. In fiscal Q4 2025, 73% of their homebuyers received a mortgage rate buydown, a slight increase from the previous quarter. The company is offering rates as low as 3.99%, which has lowered the average mortgage rate in their backlog to below 5%. For many first-time homebuyers, the monthly payment is the most critical factor, making lower interest rates highly attractive. This strategy comes at the expense of reduced gross margins, which have fallen to 20% in Q4 2025 from 23.6% in Q4 2024. Increased incentive spending, including rate buydowns, accounted for 61% of this margin compression. Despite these costs, net new orders increased by 5% year over year in Q4, indicating success in sustaining sales momentum. However, D.R. Horton is intentionally slowing housing starts to manage inventory and has seen its backlog shrink. The company noted market softness in parts of Florida, Texas, and California, while the Midwest and Mid-Atlantic show stability. Favorable construction costs continue, with material and labor costs decreasing quarter over quarter.