A February 18, 2026, SORCI Report reveals a U.S. residential builder’s profitability crisis, with 51.4% operating unprofitably after accurate financial analysis, including WIP adjustments. This dwarfs the self-reported 17.1% loss rate, exposing deep accounting gaps in the home building sector.
The 2026 State of Residential Construction Industry (SORCI) Report by the Association of Professional Builders (APB) analyzes data from 8,462 participants since 2020, focusing on the late 2025 U.S. inputs. It highlights that only 12% of builders master all four critical metrics: Work In Progress (WIP) adjustments, markup vs. margin, fixed expense ratios, and net profit margins.
WIP adjustments emerge as a key flaw. While 60% of builders claim WIP knowledge, 79.2% cannot explain the calculation correctly, leaving just 20.8% truly accurate. These errors inflate reported profits, masking risks despite steady housing demand.
Accounting Errors Fueling Losses
Self-reported data shows 17.1% of U.S. residential builders are in the red, but rigorous adjustments raise that sharply to 51.4% unprofitable. APB Co-Founder and CEO Russ Stephens warns that this disconnect drives flawed business choices.
Confusion over markup vs. margin and fixed expense controls compounds the issue. Top APB performers using precise tracking maintain stability, showing that financial discipline boosts residential builders’ profitability even in tough markets.
Market Pressures on Home Builders
Earnings reports confirm the strain. NVR’s Q3 2025 gross margin dropped to 21.0% from 23.4%, pressured by lot costs and affordability challenges. Lennar and D.R. Horton saw sales price declines and incentives in Q4 2025, signaling margin compression amid order backlogs.
Elevated interest rates and inventory dynamics persist as headwinds. Pre-2026 NAHB figures indicated 8.7% net margins, yet SORCI analysis suggests overstatement. Housing starts firmed up as of February 2026, but the profitability crisis lingers.
Path Forward for Builders
Builders need targeted financial training to overcome this U.S. residential builders’ profitability crisis. APB’s elite group excels by applying exact WIP adjustments and margin tracking, offering a blueprint for others.
Routine audits can uncover quick wins, aligning books with reality to protect cash flow.
Industry Implications
This crisis risks broader housing supply shortfalls if ignored. With 8,462 data points backing the findings, lenders and suppliers must push for better transparency from home builders.
In my view as a senior editor following construction trends, the 51.4% unprofitability rate signals urgent boardroom shifts amid expected 2026 rate cuts. Firms adopting SORCI benchmarks will gain a market edge, while laggards face insolvency. Drawing from industry parallels, U.S. builders chasing volume without viable margins repeat avoidable pitfalls, rigorous WIP focus could reverse losses fast.
Image Credit – thewest.com.au
