New Home LSI: New home lot inventory reaches new low

May 12, 2021

The New Home Lot Supply Index (LSI) hit a new low in 1Q21. The LSI dropped 24.2% year-over-year as builders are buying finished vacant lots as quickly as they are available to help meet today’s homebuying demand.

New Home Lot Supply Index for select markets

Lot inventory in all the top markets remain “significantly undersupplied.”
The markets that tightened the most on a year-over-year basis in 1Q21 were Los Angeles, San Francisco, and Baltimore. With the increased interest in for-sale product, particularly in a suburban setting, builders in these markets have been quickly securing as many lots as they can. Topography issues and NIMBY puts a cap on lot development, though.
Los Angeles, San Diego, and Baltimore are the tightest for lot supply among major markets.

“The silver lining in today’s extreme lot shortage is that it should be short lived,” says Wolf. “Builders have been aggressively buying land in different stages of development, and many of these lots will turn into homes for sale in the coming year or two.”

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.