The need that is aroused – lit by the flame, chasing the ideal dream home – is fundamentally different from the demand that is caused by being a rented refugee, where the walls are closed and every monthly payment feels like a sum of money that could do more.
Serving both customers today seems like running two completely different businesses.
The trading volume of Taylor Morrison Home Corp.Results for the fourth quarter and full year 2025 – and its outlook for 2026 – show the national builder returning to that reality.
The Scottsdale-based homebuilder closed nearly 13,000 homes last year, bringing in $7.76 billion in foreclosures at an adjusted rate of 23.0% while generating a 13% return on equity and 14% book value growth per share.
Beneath those headline numbers is our most important message for housing leaders navigating a 2026 climate of high quality, high value, and high uncertainty:
This is the year to decide not only where to lean – but what to move away from.
A business modeled on two demand curves
Less than a decade ago, Taylor Morrison deliberately expanded its location and product mix to compete in both the high-end consumer and the entry-level, first-tier segment. That diversity helped power years of growth.
Now, management is signaling a pivot back to core strength.
CEO Sheryl Palmer laid out the challenge during an earnings call, explaining how customer psychology is different across segments:
“When we’re talking about the first-time buyer space today, in every sale, we’re really working with them, can they make this work. If you look at the rise with the Esplanade buyer, I really have to… They have the strength, they have the balance sheet.”
That distinction is important. The company’s lifestyle resort brand Esplanade posted stronger momentum than entry-level or upscale orders late in the year, and management expects to open about 20 Esplanade communities by 2026 — a key strategic cycle for margin and absorption.
The numbers reinforce the divide. Fourth-quarter gross sales orders fell 5% year-over-year to 2,499, while the backlog fell sharply — down 40% to 2,819 homes — setting a soft closing point toward 2026.
The Wolfe studyTrevor Allinson characterized the coming year as a “reset,” projecting nearly 11,000 foreclosures and foreclosures near 20%, with short-term pain associated with portfolio restructuring and liquidation.
Pivot away from sales growth
Key to Taylor Morrison’s strategy is a deliberate move away from certain entry-level niches — particularly small high-end or low-end stores where incentives dominate consumer decisions.
Palmer addressed the change:
“There’s a refocusing of the business geographically where we’re not buying land in what I would call those marginal or high-end areas that attract a very different entry-level buyer.”
He added that those markets tend to stop first when conditions tighten:
“The true truth is not just a case that when you get ahead when the markets go down a little, we see those come to a very different place – and the level of motivation needed to get those first buyers into the house – is difficult.”
Earnings reflect that behavior. Total land investment has dropped to $2.2 billion in 2025 from $2.4 billion the previous year, and the total land value has dropped to 78,835 households. More than half – 54% – remains off-balance sheet, which reinforces the path of greater light amid ongoing uncertainty.
For closely-watched builder executives, this is less about pulling back from entry-level homes altogether than redefining which entry-level customers fit a sustainable economic model.
From motivations to “love”: Resetting the mix continues
One of the clear themes of the call was the return to building houses to order after the difficult environment in 2025.
According to Palmer, consumers were trained to reject incentives tied to finished inventions:
“What we’ve really seen is buyers – our industry has trained them. And the true reality is that incentives were stronger with home inventory, and the closer that home got to completion, the stronger the incentives became.”
The work before 2026 suggests a subtle behavioral change. Buyers seem more willing to personalize homes – an encouraging sign for margins:
“What we have seen since the beginning of the year is that they seem to have a great desire to buy what they want, where they want, how they want. They want to choose a house in the right way. Premiums are now very important.”
Wolfe research noted that the January mix to build order to improve sequentially, development analysts believe it can help gross margins to recover after the expected volume of close to 20% in the first quarter.
But the change will not be quick. UCFO Curt VanHyfte emphasized the pace of normalization:
“That’s something that’s not going to happen overnight… we still have a slightly higher amount of finished goods than we would like.”
Margin compression today, stagnation tomorrow
Financially, Taylor Morrison’s results show both stability and difficulty.
Fourth quarter home foreclosure revenue fell 10% to $1.96 billion, closings fell 8% and the median sales price fell to $596,000. Gross margin for foreclosures fell to 21.8%, a 300-point decrease from the prior year, reflecting mixed incentives and pressures.
For the full year, adjusted gross margin fell to 23.0% from 24.5%, while SG&A improved to 9.5% of revenue – evidence of continued cost behavior even as volume has softened.
Looking ahead, management guided first-quarter 2026 margins to around 20%, signaling continued near-term pressure.
However, the balance sheet remains a strategic asset. The company ended 2025 with $1.8 billion in liquidity, a total home equity loan of 17.8%, and a $1 billion share repurchase authorization – signs of financial flexibility even as expectations are reset.
Blame it for making choices you shouldn’t make
Perhaps the most important strategic signal is management’s emphasis on self-control.
“It’s not just our intention to just dump inventory on the ground and sell at all costs, if I think, building the value we have for our properties,” Palmer said.
That concept is consistent with the concept of income. A closing price guidance of $580,000 to $590,000 in 2026 suggests a more direct pricing approach instead of aggressive discounting to drive volume.
For industry peers, the explanation is clear: the current market is forcing builders to sharpen their definitions of “important” customers and locations.
Analyst comments support that view. Wolfe Research described Taylor Morrison’s move into the retail higher education market as “the right move” for a builder whose brand identity hinges on reliability and differentiation.
What should constructive leaders take away
Taylor Morrison’s 2026 strategy highlights a broader industry reality: the entry-level consumer — long the engine of volume growth — remains structurally challenged by high costs, financial friction, and consumer confidence.
Serving that consumer today often requires heavy incentives, slow cycles, and thin margins. Meanwhile, the discretionary and lifestyle segments – especially those with high balance sheet strength – offer stable demand in volatile conditions.
The company’s pivot is down to rejection of early adopters rather than an acknowledgment that the economics of supplying them have changed.
In a K-shaped housing economy defined by high borrowing costs, cost-of-living pressures, and widespread concerns over job security, Taylor Morrison appears to be choosing the narrower path — one built on segmentation, brand, and customer intensity rather than pure scale.
That may mean fewer closures in a shorter period of time. It could mean margin pressure in early 2026. But for a builder who has positioned himself in the next cycle rather than the last, it shows a strategic reckoning that many peers may find inevitable.
Because in this market, serving two buyers increasingly means running two businesses – and the winners can be those who are willing to decide where exactly they are built.
