Zonda’s New Home Lot Supply Index (LSI) increased 77% from the second quarter of 2022, coming in at 63.4 and now back to mid- to late 2020 levels. On a quarter-over-quarter basis, supply increased by 7.3% from the first quarter of 2023.
Despite the increase on both a year-over-year and quarterly basis, the second quarter data still 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 or above equals “significantly oversupplied” and a value of 75 or below equates to “significantly undersupplied.”
“Matching supply and demand in the housing market is challenging given the development timelines and how demand can turn on a dime depending on interest rates, consumer confidence, and supply availability,” says Ali Wolf, chief economist at Zonda. “The second quarter LSI is case in point. Many of the vacant developed lots today were in the works or developed before the slowdown seen in the second half of 2022 and the accompanying partial rebound so far this year. As such, we are seeing the LSI tick up since starts are below fourth quarter 2021 and first quarter 2022 levels. As these lots get absorbed, though, we could see the LSI flatten or even turn back down if the current starts pace holds or accelerates.”
Lot supply loosened in most major metropolitan areas in the second quarter, with 29 of 30 metros analyzed by Zonda increasing on a year-over-year basis. There were four markets labeled “appropriately supplied” and three considered “slightly undersupplied” as of the second quarter. It’s important to note that “appropriately supplied” doesn’t mean these markets are flush with lots; it just captures a more tempered and healthier pace of lot conversion compared with the height of the market, according to Zonda.
Boise, Idaho’s LSI declined slightly quarter over quarter but remains the highest market in the index at 103.9, an increase of 115% compared with last year. Salt Lake City (90.6 LSI reading), San Antonio (99.8), and Las Vegas (64.7) led the markets where land supply loosened the most year over year. On an annualized basis, starts were down in these markets 29%, 36%, and 19%, respectively. Miami (24.1), San Diego (28.8), and Orlando, Florida (34.1) currently have the tightest lot supply among the 30 metros analyzed.
On a quarter-over-quarter basis, the LSI grew in 20 of Zonda’s selected 30 markets, down compared with the prior quarter. New York and Indianapolis loosened the most, up 45% and 29%, respectively, on a quarter-over-quarter basis. However, New York remains the only major metro down compared with same time last year.
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 to 18 months.
Total upcoming lots for the second quarter decreased 15% year over year and fell 5% from the first quarter. The largest declines among the total upcoming lots came in the streets in stage, which dropped 51% from the same period one year prior. The pullback in total upcoming lots in the second quarter resembles the market demand pullback in the third and fourth quarters of 2022 and the resulting uncertainty.
Making up 67% nationally, the largest share of total upcoming lots is in the excavation stage. These lots have an expected delivery between the first and second quarters of 2024 (the range represents different timeframes from local entitlement processes). Not all the lots in excavation will match the estimated timeline, Zonda notes.
“The drop in total upcoming lots both month over month and year over year exemplifies stop-go development,” Wolf says. “The recent slowdown in housing demand lasted over six months in some metros, resulting in a collective pause across builders and developers to evaluate the market. While home buying demand is back up and Zonda data shows 45% of builders are ‘full steam ahead’ on land acquisition, it takes time to ramp things back up on the development side.”
