Lennar vs. D.R. Horton: Which Homebuilder Stock to Pick Right Now?

Homebuilding companies with operations spanning the United States, such as Lennar Corporation LEN and D.R. Horton, Inc. DHI, have been under pressure from the housing market for some time now. Although mortgage rates have decreased over the past year, they are still high, posing affordability challenges for homebuyers who want to own a house. As of the week of Oct. 16, 2025, according to Freddie Mac, the 30-year mortgage rate was 6.27%, down from 6.44% at the week of Oct. 17, 2024.Lennar is driving new home orders in uncertain market conditions through targeted sales incentives while maintaining profitability. Meanwhile, D.R. Horton focuses on strategic investments in land, lots and development, and on easing affordability challenges through similar incentives.Falling mortgage rates and expectations of two more rate cuts in 2025 have lifted homebuilder sentiment. Yet, rising costs from tariffs and a weakening labor market continue to weigh on the sector. With inflation still stubborn and new tariffs adding strain, U.S. homebuilders like Lennar and D.R. Horton are likely to face pressure until market conditions normalize.Nonetheless, let’s dive deep and closely compare the fundamentals of the two stocks to determine which one is a better investment now, despite an uncertain housing market.The Case for Lennar StockThis Florida-based homebuilder, with a market capitalization of approximately $32.1 billion, is suffering from the ongoing housing market uncertainties, which can be substantiated by its financial performance so far in fiscal 2025. As of the first nine months of fiscal 2025, the ASP of home deliveries was $393,000, down 6.7% year over year from $421,000, leading to home sale revenues of $23.24 billion, down from $24.28 billion reported a year ago. The decline in the average selling price (ASP) of homes delivered has been undertaken by the company to counter the affordability issues circling in the housing market.Lennar’s strategy of lowering ASPs and offering price incentives and mortgage buydowns to sustain volume growth has pressured profitability. In the first nine months of 2025, new orders rose 6.5% year over year to 63,960, but home sales gross margin fell 430 basis points to 18% from 22.3%, driven by lower revenue per square foot and higher land costs. While management aims to rebuild margins through cost efficiencies, near-term prospects remain weak. Margins are expected to stay flat sequentially at 17.5% in fiscal Q4 2025, down from 22.1% a year ago.Nonetheless, Lennar continues to find ways to create value for homebuyers. Its partnership with Opendoor Technologies through the Trade-Up program enables buyers to sell existing homes to Opendoor for financial assistance in purchasing new Lennar homes, which is an appealing option amid persistently high mortgage rates. Additionally, Lennar’s AI-powered digital sales and marketing platform, Lennar Machine, helps optimize absorption rates and inventory management, supporting stability in volatile market conditions.The Case for D.R. Horton StockThis Texas-based homebuilder, with a market capitalization of approximately $45.8 billion, is consistently working on mitigating the adverse impacts of a slow and weak housing market on its financial performance and growth prospects.To counter the new normal housing market scenario, the company has been offering several sales incentives to its customers. The major traffic driver incentive option is the 3.99% FHA (Federal Housing Administration) loan offered by the company’s affiliate lender, DHI Mortgage. D.R. Horton highlighted that, owing to this loan program, alongside other incentive offerings, customers’ confidence in its products has inched up, per the third quarter of fiscal 2025.D.R. Horton’s strategy of pursuing small acquisitions, including properties and local talent, to expand in emerging markets is strengthening its competitive position. In the third quarter of fiscal 2025, the company invested $2.2 billion in homebuilding lots, land, and development. It also continues to build strong relationships with land developers nationwide to construct more homes on third-party developed lots, a move aimed at improving capital efficiency, returns and operational flexibility. As of June 30, 2025, D.R. Horton’s homebuilding lot position totaled 601,400, with 24% owned and 76% controlled through purchase contracts.Although incentive offerings and strategic investment plans are boding well for the upcoming term, it is costing D.R. Horton its near-term margins and profitability structure. During the first nine months of fiscal 2025, the home sales gross margin contracted 130 basis points (bps) to 22.1% year over year. The downtrend was due to the increase in the average cost of homes closed, especially the increased incentive offerings, accompanied by a decrease in the average selling price of the closed homes. For the fourth quarter of fiscal 2025, the company expects home sales gross margin to be approximately between 21% and 21.5%, down from 23.6% reported in the year-ago quarter.Stock Performance & ValuationAs witnessed from the chart below, in the past six months, D.R. Horton’s share price performance stands above Lennar’s, the homebuilding industry and the broader Construction sector.Image Source: Zacks Investment ResearchConsidering valuation, over the last five years, Lennar is trading above D.R. Horton on a forward 12-month price-to-earnings (P/E) ratio basis.Image Source: Zacks Investment ResearchOverall, from these technical indicators, it can be deduced that DHI stock offers an incremental growth trend with a discounted valuation, while LEN stock offers a slow growth trend with a premium valuation.Comparing EPS Estimate Trends of LEN & DHIThe Zacks Consensus Estimate for LEN’s fiscal 2025 EPS indicates a 40.5% year-over-year decline, while the fiscal 2026 estimate indicates an improvement of 9.2%. The fiscal 2025 and fiscal 2026 EPS estimates have trended downward over the past 30 days.LEN's EPS TrendImage Source: Zacks Investment ResearchThe Zacks Consensus Estimate for DHI’s fiscal 2025 earnings estimates implies a year-over-year decline of 17.6% while that of fiscal 2026 reflects an improvement of 1.8%, respectively. Its fiscal 2025 EPS estimates have moved up in the past 30 days and those of fiscal 2026 have remained unchanged.DHI's EPS TrendImage Source: Zacks Investment ResearchWhich Stock to Include in Portfolio: LEN or DHI?Lennar’s, which presently has a Zacks Rank #5 (Strong Sell), fundamentals reflect margin compression and revenue declines due to reduced average selling prices and heightened incentives. Despite innovative digital initiatives like the AI-powered Lennar Machine and the Opendoor Trade-Up partnership, the company’s declining gross margin reduced investors’ optimism about the stock. Besides, a premium valuation and declining earnings estimates catalyze the evaporating optimism.On the other hand, D.R. Horton, which currently carries a Zacks Rank #3 (Hold), continues to demonstrate relative strength in execution and capital discipline. Strategic investments in land, lot development and selective acquisitions are enhancing long-term positioning. While its margins are also under pressure due to incentive programs and pricing moderation, its EPS revisions trend positively and its valuation remains attractive compared with Lennar.Given its stronger operational flexibility, disciplined capital allocation and favorable estimate trends, D.R. Horton stands as the better investment choice for investors who are seeking resilience amid a still-constrained housing market, compared with Lennar.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Beyond Nvidia: AI's Second Wave Is HereThe AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. Little-known AI firms tackling the world's biggest problems may be more lucrative in the coming months and years.See "2nd Wave" AI stocks now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Lennar Corporation (LEN): Free Stock Analysis Report D.R. Horton, Inc. (DHI): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks