In a weaker-than-expected demand environment, declining new-home sales prices, rising incentives, and geopolitical uncertainty, select homebuilders have tapped the brakes on new deliveries and deliberately slowed their sales pace to secure margins.
Not all builders are following this blueprint, including M/I Homes and Ashton Woods.
Smith Dougas Homes stands as another exception to a broader rule.
Earlier this year, when Smith Douglas Homes reported its Q4 2025 earnings, the Georgia-based builder affirmed its commitment to a contrarian strategy of prioritizing pace over margins. As many competitors scaled back, Smith Douglas Homes delivered a record 2,908 home deliveries last year.
During Q1 2026, Smith Douglas Homes continued to prioritize pace over price. Year over year, home closings decreased 7%, and revenue fell by 8%, but net new orders jumped 28%, active community count increased 24% and backlog orders increased 10%.
Built-to-order homes remain about 40% of deliveries, with specs accounting for 60%.
Maintaining a strong pace
Gregory Bennett, Vice Chairman, CEO and President of Smith Douglas Homes, said on a Q1 2026 earnings call on Wednesday that demand has been relatively strong over the past couple of months despite economic and global political volatility.
“We’re seeing seasonal traffic. We had good, strong traffic through March. April has been a slight decline, but still seasonally good,” Bennett said.
Smith Douglas Homes prioritizes pace over price largely on the back of its efficient, first-time-right build time of just 57 business days. On prior earnings calls, executives likened the team’s production model to that of an assembly line that relies on a consistent flow of starts, quick completions and rapid turnover.
This, business leaders say, is a key differentiator.
“We continue to view our ability to deliver homes quickly and reliably, with an offering of home choice and personalization, as a key competitive advantage,” said Russell Devendorf, Smith Douglas Homes’ CFO and Executive VP.
However, this strong sales pace came at the expense of margins, which fell to 19.6% last quarter, down from 23.8% a year prior. Average sales prices also fell 1.2% year over year, and incentives and price reductions continued to erode margins by 730 basis points last quarter, relatively flat with Q4 2025.
“We had a really good beat and exceeded our internal expectations on sales. That’s a reflection of us doing, you know, some additional price discovery in our communities, really driving our sales,” Devendorf said.
Incentives, particularly mortgage rate buydowns, continue to drive both sales and margin degradation.
The builder shifted late in the quarter from broadly marketing a 4.99% 30-year fixed rate to promoting a 3.99% 5/1 adjustable rate mortgage (ARM), while still offering both options. The 3.99% ARM appears to be the most effective incentive in driving traffic and sales.
For Smith Douglas Homes’ entry-level buyers, a focus on lower monthly payments is crucial for affordability.
Funding growth through increased SG&A spending
Last quarter, SG&A spending was 17.4% of revenue, up from 14.7% a year prior, another contributor to shrinking margins. Part of this was because overall revenue fell, but the bulk of the increase in SG&A spending came from funding new divisions and expansions within existing markets.
The builder operates in Georgia, Alabama, North Carolina, South Carolina, Tennessee and Texas, and launched a new division in Dallas in 2025 and another new division in Gulf Shores, Alabama, earlier this year.
As these divisions build out and existing divisions grow organically, executives expect SG&A spending to tick down.
“The increase is actually not that bad, from our perspective,” Devendorf said. “Dallas was a new division last year. We divisionalized Chattanooga [in 2024]. We’re opening up the Gulf Coast, where we hope to have some sales in the next few months. We’ve got a lot of fresh G&A that’s hitting the books without any volume. That again just reflects our continued growth and scale.”
There are other divisions where Smith Douglas Homes plans to expand operations, including the Greenville division, created in 2024, and Central Georgia, a spin-off from the Atlanta division.
The company is also eyeing growth opportunities in established divisions that haven’t yet reached the desired scale. The builder relies on an R team philosophy and targets a minimum of two R teams per division, with roughly 200 starts each, or at least 400 starts per division.
Given this goal, executives believe that they can grow further in some major markets where they already have established operations.
“We’re not quite there in a couple of our legacy divisions, like Charlotte. In Nashville, we’re not there yet. At a minimum, we wanna get [to two R teams]. That’s just the minimum, but we really feel like in some of those legacy divisions, we should be closer to three R teams, or 600 closings, specifically Raleigh,” Devendorf said.
Given the rapid expansion, executives believe that their increased G&A investment has been well worth it.
“When you look at the G&A relative to the community count increase, our community count was up 24%, but our G&A was only up $2.9 million on a gross dollar basis. To me, that’s pretty efficient,” Devendorf said.
Construction costs are down, lot costs are up
Construction costs, which ticked down slightly over the last year, were a positive. Even if the war in Iran pushes up material costs later in the year, executives said they will strive mightily to keep those increases from being passed on to their consumers, who are already stretched thin.
“That message is going through to our trade and our suppliers to say, ‘Look, you know, we don’t have the ability to take price [increases], we can’t pass that through.’ We’re holding a pretty tough line on that,” Bennet said.
However, assuming construction costs don’t inch up, higher land prices remain a concern.
“The big, the big driver still for us in margin degradation is the lot cost. Lot costs, as a percentage of revenue, were up about 300 basis points versus last year. That’s just the impact of the higher basis for land deals that we entered into in the last couple of years,” Devendorf explained.
About 30% of controlled lots are under option with land bankers, 40% are under option with developers, and 30% are with the underlying land seller.
Playing the long game
On the earnings call, executives emphasized that their operational model is designed to navigate cycles, both peaks and valleys, rather than depending on favorable market conditions.
Smith Douglas Homes takes a long-term view of the market and believes that keeping a strong pace during down cycles better prepares them for success when conditions improve.
“We believe maintaining sales pace allows us to preserve market share, generate cash flow and continue investing in our community pipelines, which ultimately drives scale and strong returns over the full housing cycle,” Devendorf said.
