Zonda’s New Home Lot Supply Index (LSI) for the last quarter of 2022 shows lot supply loosened year over year across the U.S.
The residential real estate indicator, which is based on the number of single-family vacant developed lots and the rate at which those lots are absorbed, came in at 49.1 for Q4 2022, representing a 27.5% increase from Q4 2021. The LSI is now back to late 2020/early 2021 levels, according to Zonda.
On a quarter-over-quarter basis, supply increased by 24.9%, up from the third quarter. Despite the increase, the data still reflects a "significantly undersupplied" market nationally.
“The increase in the index captures some of the healing going on in the residential housing market,” says Ali Wolf, chief economist at Zonda. “With both sales and starts lower than the frenzied pace seen over the past few years, there are early signs that availability for lots, materials, and labor are improving. More important, costs in these three categories are flattening in some cases and coming down in others in response to the slower market.”
Lot supply loosened in most major metropolitan areas in the fourth quarter, with 26 of 30 metros analyzed by Zonda increasing year over year. Inventory in all but one top market remains “significantly undersupplied,” but lots going through capital improvements indicate vacant developed lots should rise even further over the next six to 18 months.
The markets where land supply loosened the most on a year-over-year basis were in the West, led by Los Angeles; Boise, Idaho; and Salt Lake City. The LSI in Boise has risen enough that the market is now classified as “slightly undersupplied” compared with “significantly oversupplied.” Boise is the first and only metro of the select markets to fall in that category this cycle.
San Diego, Miami, and Nashville, Tennessee, have the tightest lot supply among major markets. These three markets have severe geographic and topographical limitations on land and lot development, reports Zonda.
Quarter over quarter, the LSI grew in 27 of Zonda’s select 30 markets, an increase from last quarter. On a quarter-over-quarter basis, San Antonio and Las Vegas loosened the most, up 33% and 32%, respectively.
Zonda also records future lots through the stages of development, ranging from raw land through streets in—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 indicates delivery within the next 12 to 18 months.
Total upcoming lots for the fourth quarter increased 9% year over year but fell 1% from last quarter. The largest annual gains among the total upcoming lots came in the equipment-on-site stage, which grew 28% from the same period last year. The largest share of total upcoming lots are in the excavation stage, making up 70% nationally and have an expected delivery between the third and fourth quarter of 2023.
“The spring selling season holds the keys to how the market progresses from here,” says Wolf. “An early read shows consumer activity is picking up again, and, if that trend continues, we could see stronger than expected starts this year. As it stands, though, the majority of home builders expect that housing starts will finish 2023 below 2022 levels.”
