New Home Lot Supply Falls to Record Low

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The supply of single-family lots ready for homebuilders to build on fell to a new low in the third quarter, reported Zonda, Newport Beach, Calif.

The Zonda Lot Supply Index fell 36.8 percent compared to last year. Every top market across the country is considered “significantly undersupplied,” the report said.

“More homebuilding is coming, but patience is required,” said Ali Wolf, Chief Economist with Zonda. “Governmental delays and labor shortages are not new problems for the homebuilding industry, but these legacy challenges have only gotten worse over the past 20 months. Those plus supply chain disruptions are wreaking havoc on development timelines.”

The Lot Supply Index tightened year-over-year in every market Zonda studied, with the largest percentage change in Los Angeles, Tampa, Fla. and Riverside, Calif. Los Angeles, San Diego and Charlotte currently have the tightest lot supply among major markets due to long governmental reviews, “not in my backyard” complaints and restricted land supply, the report said.

The index’s downward trend indicates builders are buying finished lots at a rate quicker than they can be replaced. But a downward trend also suggests that more homes will be built in the short run as builders go vertical on the lots.

Zonda forecast some supply relief over the next few quarters as the measure of upcoming lots increased from last year.

“Upcoming lots hold the key to improving the housing supply and demand imbalance,” Wolf said. “Runaway home price growth has been driven by low interest rates and a dearth of inventory. Total upcoming lots are up 14 percent compared to last year, and as those lots turn into homes for sale, the level of home price growth is expected to slow. This is an important factor to keep the housing market chugging along.”