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Austin and Atlanta boast 'appropriately supplied' lot inventory—L.A. and Seattle face 'significantly undersupplied' conditions

Zonda chief economist Ali Wolf: "Land and lot supply is at the healthiest levels we’ve seen in years."

Author

Lance Lambert
February 18, 2025

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A new analysis by Zonda finds that homebuilder lot supply loosened in 14 of the 30 major metro area housing markets over the past year.

Housing markets like Atlanta, Nashville, and Orlando experienced some of the most significant year-over-year loosening of lot supply.

But… despite some mild loosening in some markets on a year-over-year basis, most housing markets still grapple with Zonda’s classification of "significantly undersupplied," indicating challenges in meeting housing demand.

Zonda’s New Home Lot Supply Index, which measures lot supply based on the number of single-family vacant developed lots and the rate at which those lots are absorbed via housing starts, has 5 groupings:

  • “significantly oversupplied” = plus 125 score

  • “slightly oversupplied” = 115-125 score

  • “appropriately supplied” = 85-115 score

  • “slightly undersupplied” = 75-85 score

  • “significantly undersupplied” = below 75 score

The only three “appropriately supplied” housing markets for lot/land supply are Austin, Atlanta, and Dallas.

Lot supply is a critical factor in the housing market, as it directly impacts homebuilders' ability to meet demand and control costs. When lot supply is tight, as it remains in 26 of the 30 largest U.S. housing markets, homebuilders face higher land costs, which can apply upward pressure on home prices.

That said, zoomed out, the U.S. housing market has greater single-family lot supply than during the Pandemic Housing Boom, when red-hot housing demand caused a bull rush in the land and lot market.

“Land and lot supply is at the healthiest levels we’ve seen in years. Between 2021 and 2022, builders expressed concerns about a potential shortage of buildable lots due to rapid demand growth. However, lot supply surged in late 2022 and early 2023 as consumer demand softened while lot development continued. Currently, the market is characterized by steady growth in both lot supply and new housing starts,” wrote Zonda chief economist Ali Wolf.

Homebuilder margins continue to compress

On Tuesday, giant homebuilder Toll Brothers—which is ranked No. 394 on the Fortune 500—reported profit margin compression in Q1 2025.

Toll Brothers CEO Douglas Yearley, Jr.: "While [housing] demand was solid in our first quarter, we have seen mixed results so far this spring selling season. Although demand has remained healthy in many of our markets and particularly at the higher end, affordability constraints and growing inventories in certain markets are pressuring sales—especially at the lower end.”

During the Pandemic Housing Boom, homebuilder margins soared due to their strong pricing power amid high housing demand. Since the boom fizzled out, publicly traded homebuilders have seen their margins slowly decline. Toll Brothers, which operates more in the luxury segment, has actually been one of the slower ones to experience this compression.

Last month, Lennar—a homebuilder ranked No. 126 on the Fortune 500—told investors it expects its Q1 2025 gross margin to be its lowest for a first quarter in more than a decade.

“We're going to adjust to market. We're going to maintain [sales] volume,” Lennar co-CEO Stuart Miller said in December.

In other words, where and when needed—likely more so in pockets of Florida and Texas where active inventory has bounced back and buyers have gained leverage—Lennar is cutting net effective prices through larger incentives to find the market and keep sales rolling.

Over the past week, ResiClub PRO members got these 3 additional housing research articles: