The supply of building lots for newly constructed houses is loosening, moving nationally from “significantly undersupplied” to “slightly undersupplied,” according to the latest report from Zonda.
Lot supply improved year-over-year across the board in all but two major metropolitan areas, with New York and Minneapolis the lone exceptions. But it was still categorized as “significantly undersupplied” in 16 of 30 major markets as of last year’s fourth quarter.
On a quarter-over-quarter basis, the supply increased by 11.4%.
Zonda’s New Home Lot Supply Index for the quarter rose for the sixth consecutive quarter, again showing that the supply of lots ameliorated both year-over-year and quarter-over-quarter across the country. The index 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 via housing starts.
“Builders have scaled back starts in response to slower sales, which by extension has allowed for lot supply to grow,” explained Ali Wolf, Zonda’s chief economist. “When consumers aren’t happy, builders aren’t happy, and that’s exactly what we are seeing in the data.”
Los Angeles/Orange County, San Francisco, and Denver loosened the most. Relatedly, starts were down in those two California markets. At the same time, Minneapolis tightened the most, but Miami and San Diego still have the tightest lot markets in the country.
"Other markets, though, are oversupplied, led by Austin, Denver, and Dallas. Zonda classifies Austin and Denver as markets that are “significantly” oversupplied. The last time any top market was deemed "substantially oversupplied" was Atlanta nine years ago."
The marketing and analytics firm also records future lots through the various stages of development. The stages range from raw land through streets in, which is 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 typically indicates delivery over the next 12-18 months.
The largest share of total upcoming lots were in the excavation stage in the fourth quarter. These sites are expected to be delivered between the third and fourth quarters of this year. But the category was down 1% quarter-over quarter and off 14% from their peak in 2022.
“Seeing a reduction in the number of upcoming lots quarter-over-quarter is a positive sign considering current market conditions,” Wolf said.
“While ongoing lot development remains important, it’s equally important to maintain discipline,” Wolf added. “If lot development drops too sharply, there could be a serious shortage when consumers eventually return to the market. On the other hand, moving forward too aggressively also poses risks, especially since there are already many vacant developed lots available today.”
