(Reuters) -Homebuilder Pultegroup on Tuesday posted a 16% fall in third-quarter profit as buyer incentives squeezed home sales margins amid high interest rates and persistent inflation.

U.S. builders have leaned on mortgage-rate buydowns and smaller homes to keep deals moving, a strategy that has supported sales but pressured profitability.

These headwinds are compounded by cost uncertainties stemming from possible tariffs on key construction materials, as well as regulatory hurdles affecting mortgage financing.

Shares of the Atlanta-based homebuilder fell 2.7% before the bell.

Gross profit margin in the quarter decreased to 26.2%, from 28.8% a year earlier.

The company will "continue to monitor buyer demand that has been impacted by weaker consumer confidence and ongoing affordability challenges," said Ryan Marshall, the company's chief executive.

However, he noted that the recent interest rate cut was a positive development.

Quarterly net new orders totaled 6,638 homes, a decrease of 6% from the previous year's net new orders of 7,031 homes.

Pultegroup ( PHM ) earned $585.8 million, or $2.96 per share in the quarter ended September 30. In the prior-year period, it posted a net income of $697.9 million, or $3.35 per share.

Analysts were expecting quarterly profit of $2.89 a share, according to data compiled by LSEG.

Pultegroup's ( PHM ) third-quarter revenue fell 1.6% from a year ago to $4.40 billion, compared with analysts' estimate of $4.31 billion.