PulteGroup (PHM) is facing headwinds that threaten its profitability, as the homebuilder reported a decline in net new orders for the third quarter of 2026 and a simultaneous increase in the ratio of selling, general, and administrative (SG&A) expenses to home sale revenues. According to a Form 8-K filing, the company's net new orders dropped by 6% year-over-year to 6,208 homes. Concurrently, SG&A expenses climbed to 10.3% of home sale revenues, up from 9.4% in the prior year. This combination of a shrinking top line and rising fixed-cost absorption signals operating deleverage, where overhead costs are rising faster than revenue, which typically compresses net margins.
The company's struggles appear to be part of a broader industry trend rather than an isolated issue. The decline in PulteGroup's order book is corroborated by synchronized deterioration across the broader homebuilding sector, evidenced by rising cancellation rates at D.R. Horton (DHI), a 12% drop in orders at KB Home (KBH), and a 7% decline at NVR. This sector-wide data suggests that the issue is systemic, driven by weakening housing demand, which could lead to coordinated downward earnings revisions for homebuilder equities.
What would change this read
The bearish thesis would weaken if PulteGroup manages to reverse its operational trends in the final quarter of 2026, specifically by delivering net new orders above 6,600 homes and successfully lowering its SG&A ratio back below 9.5% of home sale revenues. Such a turnaround would indicate that the recent order slump was a temporary anomaly rather than the start of a sustained demand collapse.
