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D.R. Horton (DHI) and Lennar (LEN) have fallen 22% and 41% over the past year as surging mortgage rates crush homebuilder demand.

Colin Martin warns a hotter-than-expected Friday CPI print could force the Fed to hike rates from 3.75% as soon as next week.

Lennar's gross margin compressed to 16% while buyer incentives surged to 13%, more than double the normalized range, signaling deepening operational stress.

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Colin Martin, a fixed-income strategist at Charles Schwab, told listeners on a podcast recorded ahead of Friday's Consumer Price Index release that a hotter-than-expected reading "could result in a rate hike as soon as next week." He pointed to a hotter-than-expected jobs report and Kevin Warsh's hawkish Jackson Hole speech as reasons the bar had shifted. The Federal Open Market Committee meets Wednesday. The last recorded move in the federal funds target series was a cut to a 3.75% upper bound, effective December 11, 2025. Martin is describing a policy pivot in reverse gear.

The bond market is halfway there already. The 10-year Treasury yield closed at 4.83% on September 9, its highest reading of the past year and near the top of the trailing-year range. Freddie Mac's 30-year fixed mortgage average rose to 6.76% on September 10, a fresh 52-week high and near the top of its trailing-year range. A month ago the same series stood at 6.69%. In February it printed 5.98%.

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That backdrop is showing up first in the rate-sensitive part of the economy. D.R. Horton (NYSE:DHI), the nation's largest homebuilder by volume, is down 10% over the past month and 22% over the past year, at $135.90. Lennar (NYSE:LEN), the second-largest, is down 10% over the past month and 41% over the past year. The Lennar Class B (NYSE:LEN-B) shares carry the same underlying financials and are down 40% over the year.

The operating results explain why. On D.R. Horton's July 21 earnings call, management reported the cancellation rate rose to 20% from 17% a year earlier, and CEO David Auld cited "affordability constraints and cautious consumer sentiment." Lennar's Q2 report in June showed gross margin on home sales compressed to 15.6% from 17.8%, with buyer incentives at 12.9% versus a normalized 4% to 6%. CEO Stuart Miller blamed "persistently elevated mortgage rates, constrained affordability, and cautious consumer sentiment."

Housing starts underscore the deceleration. Commerce Department data show 1.24 million annualized in July, down 12.4% from June, near the bottom of what the interpretation guide calls the healthy range. Ivy Zelman, on the same podcast as Martin, said builders "aren't feeling all that good about where rates are" and that the market is "continuing to struggle after three and a half years."

Jeremy Siegel offered the other side of the corroboration on CNBC on September 10, arguing that Warsh "must hike rates". When a Wharton finance professor and a Schwab strategist are both entertaining a hike from a 3.75% starting point five days before the meeting, the probability distribution has shifted enough to matter for anyone holding a mortgage application, a builder's stock, or a floating-rate loan.

What to watch. The 8:30 a.m. CPI release Friday sets the immediate tone. A portfolio manager on Marketplace Morning Report forecast Friday's CPI at 3.4% annually and core CPI at 2.4%, both above the Fed's 2% target. Lennar reports Q3 after the close on Wednesday, September 16, hours after the FOMC decision. Any further cut to the 82,000 to 83,000 home full-year range, or a miss on the roughly 16% Q3 gross margin target, will tell you the builders are pricing higher-for-longer into their own books. If Martin is right about next week, the operating pressure that has already produced these results has not peaked.

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