M/I Homes Continues Spec Home Strategy Amidst Industry Shift

M/I Homes is maintaining a contrarian strategy by continuing to build a high volume of spec homes, even as many other homebuilders scale back their inventory to preserve profit margins. This approach was reiterated by M/I Homes executives during earnings calls for Q4 2025 and Q1 2026, and further confirmed during their Q2 2026 earnings call last week, indicating the company intends to remain an outlier in the market. In the second quarter of 2026, approximately 78% of M/I Homes' orders were for spec homes. Company executives attributed this sustained high level of spec inventory to the current interest rate environment and prevailing demand conditions. The builder, which was ranked 11th in HousingWire’s Homebuilder Rankings, has leveraged this consistent supply of spec homes to bolster its overall sales volume. M/I Homes executives stated that they have managed to sustain elevated spec sales while effectively controlling risk. This risk management is achieved through improvements in construction cycle times, which reduce overhead costs, and by concentrating inventory on strategically chosen lots, home floor plans, and elevations that are most likely to appeal to buyers. Despite these efforts, spec inventory typically necessitates the use of significant incentives and mortgage rate buydowns to facilitate sales. Consequently, the profit margins on these spec homes generally fall below those of homes built to order. Robert Schottenstein, M/I Homes Chairman, CEO, and President, explained during the earnings call that the difference in margins varies by market. He noted that in nearly all of the company's 17 markets, the margins on "to-be-builts" (homes built to order) are superior. While this difference might be slight in some markets, it can be as much as one or two hundred basis points, and potentially more in a select few instances. He emphasized that generally, margins are higher on to-be-builts, but the extent of this difference can fluctuate considerably from one market to another. The company's pronounced emphasis on spec homes underscores a broader strategic dilemma faced by homebuilders operating in a slower market. Builders are compelled to devise strategies that maintain sales momentum and capitalize on buyer demand without unduly compromising pricing power, profitability, or profit margins. M/I Homes' approach involves a "subdivision by subdivision" strategy for sales and incentives. During the second quarter, M/I Homes successfully sold 2,387 homes, representing a 15% increase in sales volume.