Forestar Group (NYSE:FOR) shares opened the week under scrutiny after the residential lot developer narrowed its 2026 lot delivery guidance while maintaining its revenue forecast. The company reported second-quarter results that showed profit growth but a decline in lot sales, reflecting ongoing affordability challenges in the housing market.
For the quarter ended March 31, 2026, Forestar posted revenue of $374.3 million, up 7% from the prior year. Pre-tax income rose 8% to $43.9 million, and net income attributable to the company increased 2% to $32.1 million, or 63 cents per diluted share. However, the number of lots sold fell 14% year-over-year to 2,938, even as the average price per lot climbed to $112,800 from $101,700, driven by a shift in regional mix.
The company revised its 2026 lot delivery target to a range of 14,000 to 14,500, trimming the top end from the previous 14,000 to 15,000. Revenue guidance remains unchanged at $1.6 billion to $1.7 billion. Chairman Donald J. Tomnitz cited "ongoing affordability constraints and cautious consumer sentiment" as factors weighing on new-home sales.
D.R. Horton, which owns approximately 62% of Forestar's common shares, purchased 2,450 lots during the quarter, generating $284.4 million in residential lot revenue. This relationship provides steady demand but also concentrates risk. D.R. Horton itself reported 11% growth in second-quarter net sales orders to 24,992 homes, though executive Chairman David Auld noted that affordability challenges and hesitant buyers are likely to keep sales incentives elevated through fiscal 2026.
Margin pressures are a key concern. Forestar reported $6.3 million in land purchase contract deposit and pre-acquisition cost write-offs for the quarter, up sharply from $0.9 million a year earlier. These write-offs occur when land deals fall through or are likely to be abandoned, indicating that some projects have fallen below return thresholds. Chief Operating Officer Mark Walker told analysts that gross profit margin landed at 21.4%, down from 22.6% last year, with the decline partly reflecting the $6.3 million in charges. Chief Executive Andy Oxley described the charges as linked to "a handful of communities" and said Forestar would "simply move on" from deals that don't meet underwriting standards.
Forestar ended the quarter with 94,400 lots owned or under control. Of the lots it owns, 24,100 were under contract for sale, representing potential future revenue of roughly $2.2 billion. An additional 18,100 lots carry a right of first offer for D.R. Horton.
The company's liquidity position remains solid. As of March 31, Forestar held $362.2 million in unrestricted cash and had $672.1 million available under its credit facility, providing total liquidity of approximately $1.0 billion. No senior notes are due within the next year.
The broader housing market context remains challenging. Freddie Mac's latest data shows the average 30-year fixed mortgage rate at 6.23% as of April 23, down slightly from 6.30% the prior week but still elevated. This keeps affordability front and center for homebuyers, pressuring demand for new homes and, by extension, for developed lots.
For investors, the key question is whether Forestar can convert its contracted backlog into actual deliveries while protecting margins. A modest dip in mortgage rates offers some relief, but the company's filings continue to highlight a housing market grappling with uneven pricing, uncertain sales velocity, and fragile buyer confidence.