Zonda’s New Home Lot Supply Index (LSI) increased 7.4% on a year-over-year basis to a reading of 41.7 in the third quarter. On a quarter-over-quarter basis, supply increased by 9.7% compared with the second quarter. Despite the increase on both a year-over-year and quarterly basis, the third quarter data reflects a “significantly undersupplied” market nationally, according to Zonda.
The LSI 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. An index value of 100 represents perfect equilibrium, while a value of 125 and above equals “significantly oversupplied” and a value of 75 or below equate to “significantly undersupplied.”
“One thing that has plagued the housing market over the past couple years was that demand was running 100 miles a minute, and every part of the industry was struggling to keep up,” says Zonda chief economist Ali Wolf. “While the land market remains significantly undersupplied, the uptick in the third quarter captures that the lower levels of housing demand are finally allowing the industry to catch up a bit.”
Lot supply loosened in the third quarter in most major metropolitan areas, with 19 of 30 metros analyzed by Zonda increasing on a year-over-year basis. While lot inventory in all top markets remains “significantly undersupplied,” lots going through capital improvements indicate vacant developed lots should rise over the next six to 18 months, according to Zonda.
Metros in the West, including Boise, Idaho (+97% year-over-year change in LSI), Los Angeles/Orange County (+74%), and Salt Lake City (+50%), experienced the most land supply loosening on a year-over-year basis. Miami (18.3 LSI reading), San Diego (19.7), and Jacksonville, Florida (22.6) currently have the tightest lot supply among the 30 major metro markets analyzed.
On a quarter-over-quarter basis, the LSI increased in 24 of the 30 selected markets, an increase from 10 in the previous quarter. Los Angeles and Boise grew the most on a quarter-over-quarter basis, up 46% and 30%, respectively.
Zonda also records future lots through the stages of development, ranging from raw lands 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 months.
Total upcoming lots for the third quarter increased 23% year over year but fell 2% from the second quarter. The largest annual gains among total upcoming lots came in the equipment on-site stage, which grew 30% compared with the third quarter of 2021. The largest share of total upcoming lots is in the excavation stage (71% nationally) and has an expected delivery between the second and third quarters of 2023.
“It is encouraging to see growth in vacant developed lots and total upcoming lots after hitting historic lows earlier this year,” Wolf says. “The key thing we are tracking from here is the path over the next few quarters following the slower housing market and resulting reduction in overall housing starts.”