Our monthly demand index gauges buyer interest and builder demand for new lots in 36 major markets. The index in August posted new highs for lot demand. Twenty-two of the markets surveyed reported demand levels for new building lots at an 8 or above on our 10-point scale, representing 61% of Metrostudy’s markets. The average demand for lots across all markets reached an all-time high of 7.46 in August, up 7.03% from August 2015.
For nearly two years, the scarcity of lots in prime locations at a good price has been a juggernaut for builders attempting to build affordable product, especially in major markets. In a mid-year forecast, NAHB chief economist Robert Dietz highlighted how the shortage of lots has impacted not only the value of lots, but also the footprint of home plots.
More alarming than sky-high prices, however, are the reports of severe lot shortages, particularly in big markets like Dallas-Fort Worth, Seattle, and Nashville. Metrostudy regional director Eugene James says even Atlanta is experiencing low lot supply, despite there being “more finished, buildable lots on the ground than anywhere else in the U.S.” It’s just that the pipeline varies dramatically by submarket. Seattle has faced low supply for months now; according to regional director Todd Britsch, “the shortage is forcing builders into areas they never thought they would go.” Similarly, Nashville is now facing severe lot shortages, as the equilibrium for the market was typically 18 to 24 months, and it has a mere 14 months' supply. Regional director Paige Shipp reports that VDL inventory is at historic lows in Dallas- Fort Worth, pushing prices so high that it’s “virtually impossible to deliver lots sub $200K.”
The stress of finding actual land to build on is further hindered by unnecessarily stringent municipal regulations against high-density building, and the difficulty builders are having to secure capital to finance land development, which is being seen in multiple markets across the country.