Most homebuilders today face a tough tradeoff between keeping sales moving and accepting tighter margins, or protecting profitability and giving up market share.
Ashton Woods, one of the largest private homebuilders and the 14th-largest builder in the HousingWire Homebuilder Rankings, is among them.
During a Q1 2027 earnings call with analysts on Thursday, Ashton Woods executives indicated that they would rather sell more slowly than buy volume at any cost. However, they also acknowledged that margins will likely tighten further in the near term as the market seeks its bottom.
Management described market conditions that had, if anything, worsened over the summer, pointing to many of the same headwinds cited by executives at KB Home and Lennar in recent earnings calls.
Affordability remains a key concern, buyers are increasingly hesitant and competition from the resale market continues to heighten. Many land sellers have also remained unwilling to negotiate prices to reflect current market conditions, so getting land deals done is getting tougher.
Last quarter’s earnings results show the strain. Net new orders fell, average sales prices slipped, cancellations rose and gross profit margins continued to slip.
Prospects still want to buy, and underlying demand hasn’t gone away. The hard part is getting them to convert, which takes expensive incentives. Builders are essentially paying for sales, leaving the likes of Ashton Woods weighing how to balance volume, price and margins.
Selling to an increasingly hesitant buyer
Balogh described a buyer pool that still wants to purchase, but increasingly struggles to qualify.
“What we are seeing in our communities is a buyer who still wants to own a home and is still out shopping, but is finding it harder to qualify for a mortgage,” he said on the call.
Buyers are still coming into model homes and sales offices, but higher mortgage rates and inflated living costs mean buyers need more help reaching an affordablemonthly payment. Like other builders, Ashton Woods has had to lean on incentives to close that affordability gap.
Balogh conceded that traffic has pulled back and buyers are noticeably more hesitant than they once were. And while there may be pent-up demand in the market, elevated mortgage rates remain a key barrier preventing that demand from translating into sales.
“I think the buyers and the prospects we are seeing have the same intent to buy. It’s just I think the urgency is harder to get when rates are going up,” he added.
Given this trend, Ashton Woods’ overall cancellation rate increased from 22.4% a year ago to 24.9% last quarter. Management attributed that increase to the affordability environment, particularly among entry-level buyers.
However, the entry-level and affordable segment continues to anchor a significant portion of the builder’s business. Starlight Homes, Ashton Woods’ affordable brand, accounted for 57% of total orders last quarter, with an average sales price of $291,000, compared with 58% a year earlier.
Resale competition has reared up as another headwind, particularly in Sun Belt markets like Texas and Florida, Balogh said.
“Resale sellers are cutting prices, and that puts them in direct competition for our buyers, in a way we haven’t seen for several years,” he explained.
Carefully balancing volume and margin
Ashton Woods’ earnings reflect a tougher affordability environment. Year over year, net new orders fell 6.7%, while closings rose 5.2%, backlog declined 7.8% and average sales price fell 3.6% to $346,000. Meanwhile, sales pace per community fell 12.5% to 4.2 homes per month, and the builder’s gross profit margin was 22.7% last quarter, down from 25.0% a year earlier.
Looking ahead, Ashton Woods CFO Zack Sawyer said the company is setting pace, price, and incentives community by community to find the right balance. Incentives remain an important lever, but they are costly and getting more so as rates climb, so executives signaled they are comfortable with a slower sales pace rather than sacrificing too much on margin to maintain volume.
This targeted approach to incentives means that Ashton Woods is adjusting incentives market by market, community by community and product by product, in some cases on a daily basis. The builder is using incentives selectively to convert buyers who can still qualify, while refusing to spend more on incentives where the economics don’t work.
Entry-level buyers tend to respond more to financing incentives and closing-cost assistance, while higher-priced buyers are more responsive to options, studio packages and other incentives.
“In certain communities, we will not push incentives further just to maintain pace, where doing so does not make economic sense,” Sawyer said. “While these incentives have supported sales across our communities, they continue to put meaningful pressure on our margins.”
Land as a main constraint
Balogh cited land as a main source of margin pressure, largely because market conditions have worsened, and many sellers haven’t adjusted their pricing to reflect the new market reality.
“The main margin pressure across the industry is land, and that is why we remain very disciplined about new land commitments, underwriting to today’s pricing and incentive levels, rather than the market we hope to see,” Balogh said. “Land sellers have been slower to adjust. I think you just constantly hear the same feedback, that we’re just going to wait this thing out.”
Sawyer was also blunt about how hard the land math is right now. It’s not that Ashton Woods doesn’t want to buy land, but the economics often don’t work at current prices.
“The underwriting deals today are extremely difficult. I mean, it’s tough to get deals to make sense,” Sawyer said, while pointing out that Ashton Woods will pursue land when it is a deal that “really makes sense.”
However, those opportunities are currently few and far between, Sawyer acknowledged. The company still has attractive deals moving through the pipeline and isn’t wavering on them, but those deals are predominantly concentrated in premium, centrally located “A-tier” locations.
“We still have a number of deals that are in the pipeline that are just extremely attractive in terms of where they fit with our product portfolio, the mix, which market they’re in, some real premium positions that we still love seeing,” Balogh said. “So, I think that’s kind of what you’re going to see if we have any expansion there. It’s going to be the high-quality communities that we still love.”
Methodically reducing spec inventory
Ashton Woods ended the quarter with 2,444 spec homes, down 192, or about 7.3%, from 2,636 a year earlier. Over the same period, active communities rose 15%, from 193 to 222. As a result, specs per active community fell from 13.7 to 11.0, down roughly 20%.
In other words, the builder grew its community base substantially while carrying fewer specs overall and far fewer relative to its community count. Only 504 of the 2,444 unsold specs were in the final stages of construction, or about 2.3 per active community.
The lower spec count was intentional, and that discipline matters most at Starlight Homes, which sells only spec inventory.
“This reduction reflects our continued focus on matching spec starts to sales pace…we’ve been extremely disciplined with our inventory,” Sawyer said.
