M/I Homes falls 4% as charges weigh on Q4 results
Homebuilder records $58.9M in inventory and warranty charges for full year, backlog declines amid housing market pressure
M/I Homes shares fell 4% on Wednesday after the homebuilder reported fourth-quarter results that included significant inventory and warranty charges, highlighting the challenges facing residential construction companies amid a cooling housing market.
The Columbus, Ohio-based builder reported adjusted earnings of $3.91 per share for the fourth quarter of 2025, slightly beating analyst expectations of $3.88. However, on a GAAP basis, the company recorded net income of $64 million, or $2.39 per diluted share, as total charges of $58.9 million weighed on profitability. The charges included $47.7 million related to inventory adjustments and $11.2 million for warranty claims.
Revenue for the quarter totaled $1.1 billion, representing a 5% decline from the same period in 2024. The decrease reflects broader headwinds facing the housing sector, where elevated mortgage rates and affordability concerns have tempered buyer demand.
For the full year 2025, M/I Homes reported revenue of $4.4 billion and net income of $402.9 million, or $14.74 per diluted share. The inventory and warranty charges were spread throughout the year, reducing what would have otherwise been stronger performance.
Order backlog has been contracting under pressure from the challenging market environment. At the end of the third quarter, backlog units had declined 31% year-over-year to 2,189 homes, with a sales value of $1.21 billion, down 30% from the prior year. The trend continued into the fourth quarter, though the company did not disclose specific backlog figures in its earnings release.
The inventory charges are particularly notable for what they reveal about market dynamics. Homebuilders have been forced to reassess property valuations and construction timelines as buyer demand softens and cancellation rates rise in certain markets. Warranty charges suggest quality control costs that further pressure margins in an already cost-constrained environment.
Despite the near-term challenges, analysts maintain a generally positive outlook on M/I Homes' longer-term prospects. The stock currently trades at a price-to-earnings ratio of 7.86 times trailing earnings, well below historical averages, with analysts projecting earnings per share of $20 for fiscal 2026. The consensus target price stands at approximately $157 to $165 per share, representing potential upside of 23% to 28% from current levels.
The broader homebuilder sector faces a mixed outlook. The National Association of Home Builders/Wells Fargo Housing Market Index dropped to 37 in January, its lowest level since early in the pandemic recovery, as affordability concerns and rising construction costs weigh on builder sentiment. Approximately 40% of homebuilders cut prices in January, with an average reduction of 6%.
Mortgage rates, which have been a primary drag on housing demand, have shown signs of stabilization. The average 30-year fixed-rate mortgage stood at 6.09% as of January 22, up slightly from the previous week but down from the peaks above 7% reached in late 2024. Economists anticipate rates will gradually decline throughout 2026, potentially providing some relief to housing affordability.
M/I Homes has taken steps to enhance shareholder value, including a stock buyback program authorized in November to repurchase $250 million of outstanding shares, equivalent to approximately 7.4% of its total shares. The company also reported a return on equity of 15.8% for the trailing twelve months, reflecting relatively efficient capital deployment despite the challenging operating environment.
Investors will be watching for signs that the inventory charge cycle has run its course and that order stabilization begins to emerge in the spring selling season. With housing supply remaining constrained by years of underbuilding, the long-term fundamentals for homebuilders remain intact, though the timing of a demand recovery remains uncertain.