New Home LSI: New home lot inventory dropped to cycle lows

Aug 11, 2021

The New Home Lot Supply Index (LSI) hit a new low in 2Q21. The LSI dropped 34.8% year-over-year as builders scooped up finished vacant lots to bring more homes to the market.

Lot constraints are the determining factor of how many homes are built

Lot inventory in all the top markets remain “significantly undersupplied” but lots going through development suggest vacant developed lots should rise over the next 12 months.
The markets where land supply tightened the most on a year-over-year basis in 2Q21 were Los Angeles, Riverside/San Bernardino and Philadelphia. Builders in these markets have been looking further out in the metro to meet demand and, as a result, areas that formerly were flush with more affordable supply are now extremely competitive for developed lots.
Los Angeles, San Diego and Baltimore are the tightest for lot supply among major markets.

“The universal strength in housing has led to a universal lot shortage across the country. The steep drop in the LSI tells us that builders have been buying finished lots quicker than replacements are being brought to the market resulting in an extremely competitive land market.”

Ali Wolf, Chief Economist at Zonda Economics

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.