The New Home Lot Supply Index provides an unrivaled look into the lot markets across the country, offering a current quarter snapshot as well as insight into the directional trend. This report details data for the second quarter of 2023.
The New Home LSI, backed by data from Zonda, shows lot supply loosened year-over-year across the United States. The index is a residential real estate indicator based on the number of single-family vacant developed lots and the rate at which those lots are absorbed.
“Matching supply and demand in the housing market is challenging given the development timelines and how demand can turn on a dime depending on interest rates, consumer confidence, and supply availability,” said Ali Wolf, chief economist at Zonda. “The second quarter LSI is case in point. Many of the vacant developed lots today were in the works or developed before the slowdown seen in the second half of 2022 and the accompanying partial rebound so far this year. As such, we are seeing the LSI tick up since starts are below 4Q21 and 1Q22 levels. As these lots get absorbed, though, we could see the LSI flatten or even turn back down if the current starts pace holds or accelerates.”
Zonda also records future lots by the stages of development. The stages range from raw land through streets in, which is the last step before the lot becomes a vacant developed lot. Zonda groups the last few stages into a classification called total upcoming lots, which typically indicates delivery over the next 12-18 months.
Total upcoming lots for 2Q23 decreased 15% year-over-year and fell 5% from last quarter. The largest declines among the total upcoming lots came in the streets in stage, which fell 51% from the same period last year. The pullback in total upcoming lots in the second quarter corresponds with the market demand pullback in the third and fourth quarters of 2022 and the resulting uncertainty.
The largest share of total upcoming lots are in the excavation stage, making up 67% nationally. These lots have an expected delivery between 1Q24 and 2Q24 (the range represents different timeframes from local entitlement processes). Note, not all of the lots in excavation will match Zonda’s estimated timeline.
“The drop in total upcoming lots both month-over-month and year-over-year exemplifies stop-go development,” Wolf said. “The recent slowdown in housing demand lasted over six months in some metros, resulting in a collective pause across builders and developers to evaluate the market. While homebuying demand is back up and Zonda data shows 45% of builders are ‘full steam ahead’ on land acquisition, it takes time to ramp things back up on the development side.”
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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.
