While the market remains undersupplied, lot supply reached its highest level in eight years during the third quarter, according to Zonda’s New Home Lot Supply Index (LSI).
The LSI, which tracks the number of single-family vacant developed lots and the pace at which builders start homes on them, rose to 73.2 in the third quarter, a 27.0% increase from the same time last year. The improvement marked the fifth consecutive increase from the previous quarter. Despite the gains in the LSI, the national market remains “significantly undersupplied,” as it has since 2017.
Why It Matters: The LSI’s improvement in 2025 is more a reflection of the sluggish demand conditions than any improvements on the supply side. Builders are responding to weak consumer confidence with reduced starts, a shift that could influence land strategies in the months ahead and future readings in the LSI.
“For the first time in eight years, Zonda’s LSI is on the verge of moving from significantly undersupplied to slightly undersupply,” said Ali Wolf, chief economist for Zonda. “The shift in our LSI is more a function of demand than supply, though. Builders are intentionally reducing housing starts to align with sluggish demand, which is slowing lot absorption.”
By the Numbers:
Lot supply loosened in most major metros in the third quarter, with 24 of 30 markets reporting increases. The number of markets with loosening lot supply has increased in each of the last four quarters.
Land supply loosened the most on a year-over-year basis were San Francisco, Tampa, Los Angeles/Orange County. Starts were down in each of these markets in the third quarter compared to the same time last year.
San Diego remains the most constrained lot market in the country with an index of 13.8, followed by Baltimore (18.7) and Miami (20.2).
Austin was the lone market to move into the “slightly oversupplied” category in the third quarter. Atlanta, Dallas, Denver, and San Francisco landed in the “appropriately supplied” category in the quarter.
Long-Term Perspective
Zonda also tracks future lots through stages of development ranging from “raw land” to “streets in,” which is the last stage before a lot becomes a vacant developed lot. Zonda categories the last stages of development as total upcoming lots, which indicates delivery in the next 12 to 18 months.
Total upcoming lots in the quarter decreased 4.4% compared to last year and 3.9% from the second quarter. Lots in the excavation stage were down 2.1% compared to last year, lots with equipment on site were down 5.8% compared to the third quarter of 2024, and lots with streets paved and streets in were down 6.1% year-over-year.
Approximately 385,000 lots were in the excavation stage in the third quarter with an expected delivery between the second and third quarter of 2026.
Wolf says the downtick in total upcoming lots is a function of builders starting fewer homes, taking down fewer lots, and reviewing existing land deals.
“These factors reduce lot requirements. While Zonda forecasts flat housing starts in 2026 relative to 2025, we are closely watching key indicators—namely interest rates, demand, home prices, and the labor market—that could signal a more significant market change,” she said.
