4Q21 New Home Lot Supply Index Report

Feb 16, 2022

The New Home Lot Supply Index (LSI) came in at 38.9 for 4Q21, representing a 27.8% decrease from 4Q20. The LSI flattened for the first time since the start of the pandemic, likely representing a turning point for new home inventory as we head through 2022.

The labor shortage combined with supply chain challenges and governmental delays are all slowing down the lot development timeline

Lot inventory in all the top markets remains “significantly undersupplied” but that trend is expected to shift as future lots work through the pipeline.
The LSI tightened year-over-year in 29 of Zonda’s select 30 markets, led by Los Angeles/OC, Miami, and Riverside/San Bernardino.
The drop in the LSI supports the level of starts growth we’ve seen so far and tells us that we should expect even more homebuilding in the coming months as builders continue to go vertical on the lots. The drop also means that lots are currently absorbed quicker than they can be replaced.

The efforts to develop lots are being hamstrung by the same factors influencing homebuilding: a lack of workers, the supply chain challenges, and governmental delays. Over time, the time and money invested in the residential real estate market will result in a lot more homes coming to the market. What the industry needs to track is where prices and interest rates will be by then and what it means for consumer demand.

Ali Wolf, Chief Economist

Methodology

The Zonda New Home Lot Supply Index (LSI) is built on proprietary, industry-leading data that covers the production new home market across the United States. The index values represent single-family vacant developed lot supply, lots that are ready to be built on, relative to equilibrium. Released quarterly, the New Home LSI provides an unrivaled look into the lot markets across the country, offering a current quarter snapshot as well as insight into the directional trend.

The New Home LSI is calculated based on each markets’ specific equilibrium as determined by our team of local experts and historical activity. The comparative current value is adjusted to capture the “true” months of supply figure by applying a greater weight to vacant developed lots in subdivisions with more starts activity. Each index value is associated with a phrase highlighting the current lot supply dynamics. A value of 100, represents perfect equilibrium, while a value of 125 and above equals “Significantly Oversupplied”, 115-125 – “Slightly Oversupplied”, 85-115 – “Appropriately Supply”, 75-85 – “Slightly Undersupplied”, and 75 and below – “Significantly Undersupplied.”

The foundation of the index is a quarterly release conducted by Zonda. It is necessary to monitor residential lot supply to understand how new home markets may be impacted by the incoming pipeline.