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Following the frenzied competition of post-pandemic years, demand for residential land has plunged—a clear sign that builders are pulling back as profit margins shrink.
And this shift does not bode well for the future of new-home construction in the U.S., according to a new report from John Burns Research and Consulting.
“After two years of fierce competition, land demand has collapsed by nearly two-thirds,” writes Dillan Krieg, a senior research analyst specializing in surveys at John Burns.
The latest data from the housing industry analytics firm show that only 28% of land brokers reported strong demand for lots in the second quarter of 2025, down from 76% a year ago. The last similarly dramatic drop in demand was recorded in late 2022 during the pandemic.
For comparison, at the start of the year, half of surveyed brokers reported robust demand in their markets.
Krieg explains that the softening demand is driven by the fact that lot prices “have been slow to adjust to declining builder profitability.” Simply put, the cost of land remains high, even as builders struggle to command top dollar for their completed homes.
“Land prices typically lag the broader housing market,” Krieg tells Realtor.com®. “In particular, many raw land sellers hold out for their preferred price and are willing to wait if they don’t need to sell. For finished lots, though, low supply is a big factor keeping prices up.”
(John Burns Research And Consulting)
Land prices tick up as demand sags
Developed, ready-for-construction, land has been in relatively short supply over the past few years in many markets due to regulatory barriers, so competition persists even with softening demand, notes Krieg.
In the post-COVID era of strong profit margins, builders were willing and able to shell out more for land as they focused on churning out homes for sale—but then came the slowdown.
While new-home prices were down 1% nationally in Q2 2025 from a year ago, lot prices increased between 4% to 6% annually, depending on the location.
In June, the typical new-construction home sold for $407,200, or roughly $28,000 less than an existing home, marking the biggest inversion in at least 25 years.
Last month, the price gap between new and preowned homes narrowed to $19,000, representing a sizeable 4% discount on new construction—an unprecedented shift.
Additionally, about 80% of brokers surveyed by John Burns reported more transaction cancellations and renegotiations than normal in spring and early summer 2025—a sign that deals that made financial sense six months ago no longer work in today’s stalled market, where buyers and sellers find themselves in a standoff.
What does it mean for new-home supply?
(Getty Images)
The weakened demand for land means slowing construction starts—and fewer new homes on offer for buyers—going forward, according to the John Burns report.
“Builders already say they are pulling back their start rates as new-home inventory stays high and sales are sluggish,” says Krieg.
Erik Heuser, chief corporate operations officer at Taylor Morrison, a leading national homebuilder, tells Realtor.com that the company is making adjustments when it comes to future land purchases given its well-stocked portfolio.
“We intend to take our projected land spend down a bit this year as we navigate the current market, renegotiate terms on controlled land, and pivot to a bit more opportunistic stance,” says Heuser.
But the flip side of today’s collapsed demand is that developers can expect to extract lower prices and more favorable terms from lot sellers in the short term, which could boost new-home supply.
“In the long term, there continue to be major structural barriers restricting new housing supply,” says Krieg. “Our latest survey shows that jurisdictional requirements, permitting delays, and infrastructure challenges remain the biggest obstacles for new land development.”
Falling home prices to push down land costs
Realtor.com Senior Economist Joel Berner says that in July, land prices were up 2.4% year over year on a per-acre basis, while page views per property listing were essentially flat.
Echoing Krieg’s analysis, Berner predicts that subdued demand will keep price growth low, but it will also restrict building activity.
“This is unsurprising, given the increased costs of labor and materials that builders are facing, combined with slow new-home sales this summer,” says Berner. “Builders appear to be pulling back, and high land prices up to this point are part of the challenge facing them.”
This is what has been happening: Low new-home prices combined with high land prices have meant less money in builders’ pockets, prompting them to slow down their construction activity, diminishing the supply of fresh inventory.
But the economist points out that this is a cyclical process, so the falling prices of newly built properties are expected to push down land prices in the future. And a drop in land value may eventually translate into lower new-home prices, especially if buyer demand remains sluggish amid an oversupply of unsold inventory.
“If demand picks back up, home prices and land prices will increase and the cycle will repeat itself,” predicts Berner.
Heuser, with Taylor Morrison, says he anticipates “further choppiness” in the near term, but he says longer-term trends—from a housing shortage to generational demand and rising home equity—”bode well” for the housing market.