M/I Homes recently held its Q3 2025 earnings call, providing insights into its performance amidst a dynamic housing market. Despite notable challenges, the company achieved a commendable pretax income of $140 million and set a new third-quarter record with 2,296 home closings. However, the report also highlighted a 6% year-over-year decrease in new contracts and significant pressure on gross margins, primarily influenced by strategic mortgage rate buy-downs and inventory adjustments. The leadership team underscored their commitment to a robust balance sheet and their successful Smart Series homes, which are proving instrumental in adapting to market fluctuations.
M/I Homes Navigates Market Headwinds with Strategic Focus in Q3 2025
On Wednesday, October 22, 2025, M/I Homes executives, including Chairman, President, and Chief Executive Officer Robert H. Schottenstein, Executive Vice President and Chief Financial Officer Phillip G. Creek, and President of M/I Financial Derek Klutch, convened to discuss the company's third-quarter performance. The call illuminated a period marked by both achievements and ongoing challenges in the housing sector.
A key focus of the discussion was the noticeable decline in gross margins, which decreased by 320 basis points year-over-year to 23.9%. This reduction was largely attributed to the company's strategic use of mortgage rate buy-downs, which aim to stimulate sales and drive traffic in a competitive environment. Furthermore, $7.6 million in inventory charges contributed to 60 basis points of this decline. New contracts saw a 6% dip from the previous year, with a significant 17% decrease in the Northern Region, though partially offset by a 3% increase in the Southern Region.
Despite these pressures, M/I Homes reported several positive indicators. The company closed a record 2,296 homes in the third quarter, representing a 1% increase from the prior year. Pretax income stood at a solid $140 million, translating to 12% of revenue. The return on equity, while slightly down from last year, remained strong at 16%, meeting the company's minimum internal targets. Book value per share increased by 15% year-over-year to $120, and the company maintained a robust cash position of $734 million with zero borrowings on its $900 million unsecured credit facility, resulting in an impressive net debt-to-capital ratio of negative 1%.
Mortgage and title operations delivered a strong performance, with a record 93% capture rate, up from 89% a year ago. Pretax income from these operations surged by 28% to $16.6 million. Loans originated increased by 9%, and the volume of loans sold saw a 19% increase, with a notable shift towards government-backed financing (FHA/VA) which accounted for 45% of closed loans, compared to 34% previously.
The company's Smart Series homes, designed for entry-level and value-driven buyers, continued to be a significant contributor, making up 52% of total sales. M/I Homes maintains a substantial land position, owning approximately 24,400 lots and controlling another 26,300 through option contracts, providing a five- to six-year supply. This strategic land holding supports projected community count growth of about 5% in 2025.
Executives emphasized their disciplined approach to managing market conditions on a subdivision-by-subdivision basis and their reluctance to engage in material merger or acquisition activities in the near term, opting instead to focus on organic growth within existing markets. The company's strong balance sheet, coupled with prudent financial management, positions it favorably for future fiscal periods.
This earnings report offers valuable lessons in resilience and adaptability for businesses operating in volatile markets. M/I Homes' proactive use of incentives like mortgage rate buy-downs, coupled with a strong emphasis on maintaining financial health, demonstrates a pragmatic approach to navigating economic uncertainty. Furthermore, the company's focus on its "Smart Series" homes highlights the importance of tailoring offerings to specific market demands, particularly in segments seeking affordability. This strategy not only sustains sales but also reinforces customer loyalty. The discussion also subtly underscored the criticality of geographic diversification, as different regions exhibited varying levels of performance, allowing the company to offset weaker areas with stronger ones. Ultimately, M/I Homes exemplifies how strategic planning, financial discipline, and an understanding of market nuances can lead to solid performance even when faced with significant headwinds.
