Giant homebuilder KB Home shifts strategy amid a housing market where it lacks pricing power

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There’s no doubt about it: Housing market softening across the Sunbelt—the epicenter of U.S. homebuilding—has caused homebuilders to lose pricing power over the past year.

Amid the additional margin compression, some giant homebuilders are adjusting their strategies. Lennar is finally easing up a little on its market share, taking volume-over-margin strategy, while KB Home—a homebuilder ranked No. 526 on the Fortune 1000—said on December 18 that it plans to lean even harder into built-to-order (more on that below).

At the end of last week, KB Home posted its Q4 2025 earnings—the three months ending November 30. During its earnings call, it underscored just how tricky the current housing market remains, even for builders that have avoided the most aggressive incentive wars and speculative inventory strategies.

In today’s article, ResiClub highlights seven key takeaways from KB Home’s latest earnings.

1. KB Home’s margins compress to the lowest Q4 level since 2016

During the Pandemic Housing Boom, many publicly traded homebuilders achieved record profit margins as home prices soared and buyer demand ran red-hot. Ever since the national housing demand boom fizzled out in the summer of 2022, many large homebuilders have reduced margin and made affordability/pricing adjustments where and when needed to maintain their sales pace or prevent a bigger sales pullback.

That includes KB Home, which reported a housing gross profit margin of 17% in Q4 2025—down from a Q4 cycle peak of 24.1% in Q4 2021. Its margin has now compressed to its lowest Q4 level since Q4 2016.

As KB Home CFO Robert Dillard said on the company’s December 18, 2025 earnings call:

“Housing gross profit margin was 17%, and adjusted housing gross profit margin, which excluded $13.7 million of inventory-related charges, was 17.8%. Adjusted housing gross profit margin was 310 basis points lower due to pricing pressure, negative operating leverage, higher relative land costs, regional mix, and product mix, which was pronounced due to the age and price of incremental volume versus guidance.”

2. KB Home’s average selling price is down 8.8% from its 2022 peak

Unlike many giant homebuilders such as Lennar—which has preferred to pull the mortgage rate buydown lever when making affordability adjustments this cycle—KB Home has chosen to rely more on outright price cuts. [Back in summer 2023, KB Home CEO Jeffrey Mezger told me that these price cuts would be their strategy if any of their regional housing markets weakened further.]

In Q4 2025, KB Home’s average selling price ($465,600) was 7.1% below Q4 2024 ($501,000) and 8.8% below its cycle peak in Q4 2022 ($510,400). While part of this decline is due to mix shift, KB Home has previously acknowledged cutting home prices over the past 18 months in markets such as Austin and San Antonio, as well as in Orlando and Jacksonville, Florida.

“Average selling price declined 7% to $466,000 due to regional and product mix and general market conditions,” Dillard said on the earnings call.

3. KB Home’s margin defense plan: leaning harder into Built-to-Order

KB Home is making no secret of its goal: Increase built-to-order deliveries as a share of business to 70% or more of total volume, up from 57% in Q4 2025.

The reason is simple—built-to-order margins are materially higher for KB Home. Built-to-order homes tend to generate higher margins because they’re sold before construction begins, reducing inventory carrying costs. Buyers also tend to select higher-margin upgrades and options, which lifts gross profit per home.

KB Home COO Robert McGibney said on the company’s December 18 earnings call:

“While we always have some inventory homes available for those buyers that need a quicker move-in date, the superior margins we generate on built-to-order homes will allow us to realize greater value from our communities. Our gross margins on built-to-order homes are trending 3 percentage points to 5 percentage points higher than on inventory sales, and we began to see a shift toward more built-to-order sales during November, an encouraging trend that has continued into December. As we remain focused on selling our built-to-order homes and these sales become deliveries over the course of fiscal 2026, we expect to achieve a favorable trajectory in our gross margins.

“We’re very focused on getting back to at least a 70/30 [built-to-order] ratio, and we see a great opportunity to drive that change with the new communities coming in the spring.”

KB Home executives believe that by leaning more into built-to-order, it’ll help see their margins bottom in Q1 2026.

KB Home CEO Jeffrey Mezger said on the earnings call:

“We’ve already shared that the first quarter margins are the low-water mark, and we expect improvement quarter-over-quarter as the year progresses from there. And it’s a combination of better leverage as we grow revenue back and better margins as our community mix rotates around.”

4. KB Home’s home sales are down 10% year over year

KB Home’s net new orders by Q4 ????

• Q4 2018 —> 2,013
• Q4 2019 —> 2,777
• Q4 2020 —> 3,937
• Q4 2021 —> 3,529
• Q4 2022 —> 692 (mortgage rate shock—pause before pricing recalibration/easing backlog)
• Q4 2023 —> 1,909
• Q4 2024 —> 2,688
• Q4 2025 —> 2,414

“We were disciplined in not taking overly aggressive steps to capture sales during the seasonally slower fourth quarter,” Mezger said on the earnings call. “By doing so, we believe we are positioned to achieve better margins on these sales in our 2026 first quarter than we would otherwise have produced.”

5. KB Home’s margin compression would be greater right now if not for modest declines in construction and material costs this year

“This margin pressure was again partially offset by lower direct construction costs per unit,” Dillard said on the earnings call. “It’s notable that average costs per unit declined in the quarter as direct construction costs and material costs declined more than lot costs increased.”

6. KB Home’s cancellation rate remains stable

7. Faster build times

KB Home has reduced build times by roughly 20% year over year, hitting its company-wide target of 120 days or better for built-to-order homes. Some divisions are now averaging under 100 days.

Where does KB Home actually build?

Pulling data from the ResiClub Terminal—where we keep footprint data for America’s 21 largest homebuilders—we made the map below.