Zonda’s New Home Lot Supply Index (LSI) for the fourth quarter of 2023 reveals a complex landscape for the residential real estate sector.
According to the newly published data, the supply of new-home lots experienced a year-over-year expansion yet tightened when compared with the previous quarter, indicating a nuanced balance between supply and demand in the housing market.
The New Home LSI, a barometer for residential real estate dynamics, stood at 61.9 for the fourth quarter. This figure marks a significant 25.1% increase from the same quarter in 2022, signaling a persistent undersupply in the national market despite the year-over-year growth. Conversely, the index saw a 3.2% decrease from the third quarter, hinting at a tightening lot supply as builders ramp up construction activities.
Zonda chief economist Ali Wolf highlighted the impact of construction trends on lot availability.
“As builders gain confidence and increase starts, we’re witnessing a tightening in lot supply, despite a temporary increase in availability earlier,” Wolf said.
She further noted that with 75% of builders planning to initiate more projects this year, the demand for lots is expected to rise, potentially exacerbating challenges related to housing affordability due to lot pricing dynamics.
Regionally, the report shows varied trends across major metropolitan areas. While most markets remained “significantly undersupplied,” a year-over-year loosening in lot supply was observed in 24 of 30 major metros, a slight decrease from the previous quarter’s 29. Notably, Phoenix; Nashville, Tennessee; and Charlotte, North Carolina, led the pack with the most significant increases in starts, further illustrating the diverse conditions across different regions.
The New Home LSI also shed light on the future lot supply, indicating a 20% year-over-year decrease in total upcoming lots for the fourth quarter, with the excavation stage witnessing the most substantial decline. This reduction aligns with a broader pullback in market demand observed at the end of 2022 and the beginning of 2023.
Despite these challenges, Wolf said she remains optimistic about the new-home market’s potential for modest growth, supported by the current level of lot development.
“Context is important when looking at total upcoming lots,” Wolf said. “While there has been a notable pullback in the most recent data, total upcoming lots are 11% above the same time in 2019. For context, new-home sales finished the year exactly in line with 2019 levels. Current lot development is supportive of modest growth in the new-home market but doesn’t support blockbuster growth.”
The Zonda report paints a picture of a housing market at a crossroads, with varying dynamics influencing lot supply across the nation. As builders and developers navigate these conditions, the interplay between lot availability, construction activity, and housing affordability remains a critical area of focus for stakeholders across the industry.
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