Today’s letter is brought to you by RealAI!
AI for the Grunt Work. Humans for the Insight.
Auto-populate the model, pull comps, rebuild broker pro formas, and support every assumption. RealAI handles the grindy work so you can focus on what matters: understanding the deal. Upload a deal room and your Excel template. Get a first draft in minutes. RealAI organizes the documents, gathers the relevant data, and builds a live, cited pro forma in minutes. Every figure is grounded in 3.5 trillion data points—including rents on more than 10 million units and facts on 126 million properties—and is traceable to its source.
Built by the team behind Fundrise, with more than 15 years and 35,000 units of real-world underwriting experience. Spend less time building the analysis. Spend more time thinking about what it means.
Giant homebuilders are holding steady with aggressive incentives—but the upward burst has stalled recently
During the Pandemic Housing Boom, many publicly traded homebuilders were running historically low incentives as home prices soared and buyer demand ran red hot. However, once the national housing demand boom fizzled out in the summer of 2022, many large homebuilders—including public homebuilders Lennar and K. Hovnanian Homes—upped incentives to prevent a bigger pullback in new home sales. On Thursday, K. Hovnanian Homes reported its fiscal Q3—the three months ending July 31, 2026—and for apples-to-apples purposes when comparing that with other builders, ResiClub adjusted that to calendar year Q2.
Q2 2022 sales incentives rate:
Lennar —> 1.5%
K. Hovnanian Homes —> 2.5%
Q2 2026 sales incentives rate*:
Lennar —> 12.9%
K. Hovnanian Homes —> 10.8%
For K. Hovnanian Homes, which had an average selling price of $539,000 last quarter, a 10.8% incentives rate comes out to $58,000 in incentives. That’s a lot to spend on incentives.
However, while big homebuilders are still maintaining aggressive incentives—particularly in softer parts of the Sun Belt that have seen greater cyclical cooling—that escalation has plateaued recently.
In fact, Lennar’s sales incentives rate in Q2 2026 (12.6%) was slightly below its peak in Q3 2025 (14.3%), while K. Hovnanian Homes’ most recent sales incentives rate (10.6%) was also a hair below its peak two quarters ago (12.6%). This plateauing in incentives rates coincides with the nationally aggregated housing market seeing its rate of softening slow down over the past year. While the nationally aggregated housing market remains soft, the burst of softening has eased. National housing inventory growth has decelerated notably over the past year, and the total number of regional housing markets with falling home prices has stopped climbing over the past year.
While giant builder incentive rates have shown signs of plateauing in recent months, incentives remain elevated and aggressive.
According to Lennar executives, they consider their "normal" baseline for incentives to be around 5.0% to 6.0%. Its incentive rate of 1.5% in Q2 2022 was an overheating anomaly. However, its incentive rate of 12.9% in Q1 2026 is clearly historically high—and on par with its incentive levels in 2010.
Put another way, a $400,000 home sold with a 12.9% incentive rate translates into $51,600 spent on buyer incentives. That's a lot.
Of course, this varies a lot by market—and even within markets. Just look at the table below, which shows how Lennar's annual sales incentive rate varied across its divisions over the past few years. (Lennar only reports this figure annually.)
The two wildcards that could cause homebuilder incentives to move higher again:
If inflation concerns push long-term bond yields higher from here—including mortgage rates—it could force homebuilders to choose between accepting even softer sales or increasing their spending on affordability adjustments and forward commitments on mortgage rate buydowns to keep monthly payments affordable for their buyers.
Another wildcard would be a renewed burst of regional housing market softening similar to what we saw in the second half of 2022 and again (albeit at a slower pace) between 2024 and mid-2025. If that were to occur, the supply-demand equilibrium could shift further toward homebuyers across more regional markets, putting additional pressure on builders to raise incentive spending in order to maintain sales pace and move inventory. That said, if another significant softening wave were developing, we would likely already be seeing early signs of it in the real-time inventory data through a sharper acceleration in active listings for sale. At the moment, we are not seeing that. In fact, national inventory growth has decelerated over the past year, suggesting that while the housing market remains soft overall, the softening burst has eased (at least for now).
*For comparison purposes, we aligned the homebuilders’ fiscal quarters with the calendar-year quarter in which the majority of each fiscal quarter fell. For example, Lennar’s Q2 2026 ended on May 31, 2026, so it remained classified as Q2. However, Hovnanian’s Q3 2026 (three months ending July 31, 2026) was adjusted to Q2 for the chart above because most of that fiscal quarter fell within the first calendar quarter of 2026.
Despite several pockets of Florida having undergone home price corrections following the end of the Pandemic Housing Boom, aggregate foreclosures and bankruptcies in Florida remain low this year
Firms that would like a demo of the ResiClub Terminal should email: [email protected]
