Zonda’s New Home Lot Supply Index (LSI) fell 9.3% year over year to a reading of 38 in the second quarter of 2022. On a quarter-over-quarter basis, supply decreased by 2.2%, down slightly from the first quarter of the year.
The index, a residential real estate indicator based on the number of single-family vacant developed lots and the rate at which those lots are absorbed, reflects a significantly undersupplied market.
“The constrained availability of lots over the past couple of years, along with the labor and material shortages, put a lid on overall home building activity,” says Ali Wolf, chief economist at Zonda. “While vacant developed lot inventory tightened slightly in the second quarter, the key number to track going forward is lots under development, which are up 28% compared with last year.”
According to Zonda, lot supply continued to tighten in most major metropolitan areas in Q2, but lots going through capital improvements indicate vacant developed lots should rise over the next six to 18 months.
Two out of three markets where land supply tightened the most on a year-over-year basis were in Florida. Jacksonville (-53%), Miami (-40%), and Denver (-24%) led the year-over-year declines, while Jacksonville, San Diego, and Miami currently have the tightest lot supply among major markets overall.
The LSI grew quarter over quarter in 10 of Zonda’s select 30 markets, a slight decline from 12 in the last quarter. On a quarter-over-quarter basis, Los Angeles and Boise, Idaho, grew the most, up 17% and 15%, respectively.
Zonda also tracks future lots through stages of development, ranging from raw land through “streets in,” which is the last phase before a lot becomes a vacant developed lot.
Total upcoming lots for Q2 increased 28% year over year and grew 1.2% from the previous quarter. The largest annual gains among the total upcoming lots came in the excavation stage, which grew 36.5% from the same period last year. Lots in excavation represent 71% of the total upcoming lots, which are estimated to become vacant developed lots between Q1 2023 and Q2 2023.
“The housing market was moving a mile a minute heading into 2022,” adds Wolf. “What we’ve seen is that consumers have responded to higher home prices and mortgage rates by slowing demand. Housing starts are tied to housing demand. Eighty-seven percent of the builders surveyed by Zonda anticipate slowing new construction in response to the shifting market.”
