Adding to the difficulty is the resurgence of the resale market. For several years, new homebuilders enjoyed a significant advantage because existing homeowners were "locked in" to low mortgage rates and refused to sell, creating a vacuum of inventory. However, Balogh noted that this trend is shifting, particularly in high-growth Sun Belt markets like Texas and Florida. Resale sellers are increasingly willing to cut prices to move their properties, placing them in direct competition with new builds for the first time in recent memory.
Carefully Balancing Volume and Margin
The financial results for the first quarter reflect the impact of these headwinds. Net new orders for Ashton Woods fell by 6.7% year over year, a clear indication of the slower sales pace. While the company managed to increase its closings by 5.2%—largely by working through existing backlog—the forward-looking indicators suggest a period of contraction. The total backlog declined by 7.8%, and the average sales price across the company’s entire portfolio fell 3.6% to $346,000.
Perhaps the most telling metric was the gross profit margin, which contracted to 22.7% from 25.0% a year earlier. This 230-basis-point drop is the direct result of the "paying for sales" strategy involving heavy incentives. Faced with this trend, Ashton Woods executives signaled a shift in tactics. CFO Zack Sawyer emphasized that the company is moving away from a "volume at any cost" mentality.
Sawyer explained that the company is now evaluating "pace, price, and incentives" on a community-by-community, and sometimes even a daily, basis. This granular approach allows the builder to be surgical with its capital. In markets where demand is resilient, they will hold the line on prices; in markets where the math no longer makes sense, they are willing to let the sales pace drop rather than continue to erode margins with ever-higher incentives.
"In certain communities, we will not push incentives further just to maintain pace, where doing so does not make economic sense," Sawyer stated. He acknowledged that while incentives are a vital lever for converting hesitant buyers, they are currently putting "meaningful pressure" on the company’s financial health. By choosing a slower sales pace, Ashton Woods is essentially betting that the market will eventually stabilize, and that maintaining a healthy margin today is more important than chasing a specific delivery target.
Land as a Main Constraint
While labor and material costs have stabilized somewhat following the post-pandemic surge, land remains the most significant hurdle for homebuilders. Balogh identified land pricing as the primary source of long-term margin pressure, noting a disconnect between what land sellers expect and what the current housing market can support.
