US 30-Year Fixed Mortgage Rate Rises to 6.95%: Are Berkshire's Former Holdings DHI and LEN Still Worth Buying?
AI Podcast
As of September 17 Eastern Time, rising U.S. mortgage rates approaching 7% continue to erode homebuyer affordability, pressuring major homebuilders D.R. Horton (DHI) and Lennar (LEN) through increased sales incentives and compressed margins. DHI reported flat revenue, 4% delivery growth, and a 20.7% gross margin, but faced a higher 20% cancellation rate. LEN saw a 9% drop in new orders, a lower 15.8% gross margin, and lowered its fiscal 2026 delivery target. While both trade at similar P/E multiples around 13x, DHI demonstrates stronger resilience against high rates, whereas LEN faces steeper downward pressure on profitability and order volumes.
TradingKey - As of September 17 Eastern Time, the average U.S. 30-year fixed mortgage rate rose to 6.95%, up 19 basis points from the prior week and just 5 basis points shy of 7%, compared with 6.26% in the same period last year.
Rising mortgage rates continue to suppress demand and profit margins for U.S. homebuilders. Higher monthly payments are eroding homebuyer affordability, forcing builders to boost sales through price cuts, mortgage rate buydowns, and transaction subsidies, which in turn puts pressure on orders, realized selling prices, and gross margins on home sales.
D.R. Horton (DHI) and Lennar (LEN) are both major U.S. homebuilders with in-house mortgage operations that directly offer financing options to homebuyers. Mortgage rate buydowns and other sales incentives help sustain sales volume, but they also increase promotional expenses and depress home sales gross margins.
Berkshire disclosed holding approximately 7.05 million shares of LEN and 1.49 million shares of DHI in the second quarter of 2025, and in July 2026 acquired Taylor Morrison (TMHC) for approximately $6.8 billion, further expanding its investment and operational scale in the U.S. homebuilding industry. Against the backdrop of mortgage rates approaching 7% and industry profitability under pressure, whether DHI and LEN can continue to sustain orders and margins is key to evaluating whether the two stocks are worth buying.
DHI Deliveries Grow, but Cancellation Rate Rises to 20%
D.R. Horton reported revenue of $9.227 billion for the third quarter of fiscal 2026 ended June 30, roughly flat from the same period last year; home deliveries increased 4% year-over-year to 23,983 homes, and the home sales gross margin was 20.7%.
Net income attributable to DHI fell 12% year-over-year to $905 million. Net sales orders were 23,084 homes with an order value of $8.4 billion, both essentially flat compared to the prior-year period; the cancellation rate rose from 17% to 20%.
The company expects sales incentives to remain elevated in the fourth fiscal quarter, with the specific level depending on housing demand, mortgage rates, and other market conditions.
As of the end of June, DHI had a total inventory of 38,000 homes, of which 23,300 were unsold. Among the unsold homes, 7,600 were completed, including 600 that had been completed for more than six months. When mortgage rates remain high, a larger volume of unsold completed homes may increase pressure for price reductions and sales incentives.
LEN New Orders Fall 9% YoY as Home Sales Gross Margin Drops to 15.8%
Lennar reported total revenue of $8.05 billion for the third quarter of fiscal year 2026 ended at the end of August, down about 9% year-over-year; home deliveries fell 3% year-over-year to 20,840 units, while new orders dropped 9% to 20,879 units.
The company's gross margin on home sales dropped from 17.5% in the same period last year to 15.8%, rebounding slightly from 15.6% in the previous quarter. The average delivery price was $372,000, down from $383,000 in the prior-year period. The company stated that sales incentives offered to maintain sales volume accounted for approximately 12% of home prices.
Impacted by rising mortgage rates and a weakening market environment, Lennar lowered its fiscal year 2026 delivery target from 82,000–83,000 units to 80,000–81,000 units. The company expects to deliver 22,000 to 23,000 homes in the fourth fiscal quarter, with a gross margin on home sales of 15.5% to 16.0%.
Higher sales incentives, lower revenue per square foot, and rising land costs continue to weigh on profit margins. While maintaining its delivery volume, the company has yet to see a significant recovery in profitability.
Are DHI and LEN Still Worth Buying?
As of September 18, based on trailing 12-month earnings per share, the P/E ratios of DHI and LEN were approximately 13.2x and 13.6x, respectively. While historical P/E ratios of the two companies are similar, their performance in orders, deliveries, and margins has diverged.
DHI's third-quarter home deliveries increased 4% year-over-year, and according to the latest disclosed data, its home sales gross margin of 20.7% was also higher than LEN's. The main pressure on the company stems from its order cancellation rate rising from 17% to 20%, as well as potential promotional needs arising from 23,300 unsold homes.
LEN's third-quarter new orders fell 9% year-over-year, average delivery prices dropped 3%, and home sales gross margin declined from 17.5% to 15.8%, with its full-year delivery target lowered from 82,000–83,000 units to 80,000–81,000 units. Although gross margin rebounded slightly by 0.2 percentage points from the previous quarter, a sustained trend of improvement has yet to form. Sales incentives currently equivalent to roughly 12% of home prices continue to weigh on selling prices and margins.
Based on the latest financial reports, DHI delivered relatively stronger performance in deliveries and gross margins, demonstrating a greater capacity to withstand high mortgage rates than LEN. LEN faces greater pressure on orders and margins, and its future recovery hinges on a rebound in homebuying demand, falling land costs, and a reduction in sales incentives.
This content was translated using AI and reviewed for clarity. It is for informational purposes only.
Recommended Articles
Comments (0)
Click the $ button, enter the symbol, and select to link a stock, ETF, or other ticker.