New Home Lot Supply Drops To Cycle Lows According To Zonda

New Home Lot Supply Drops To Cycle Lows According To Zonda
January 6, 2021

COSTA MESA, California (MO.Properties) – Today, the experts at Zonda, the housing industry’s foremost advisors, released the New Home Lot Supply Index (LSI) for 3Q2020. The New Home LSI, backed by data from Zonda, shows lot supply tightened year-over-year across the United States. The index is a residential real estate indicator based on the number of single-family vacant developed lots and the rate those lots are absorbed.

The New Home LSI came in at 63.5 for 3Q20, representing a 9% decrease from 3Q19. On a quarter-over-quarter basis, supply declined by 3.7%. The national third quarter data represents a significantly undersupplied market and continues to highlight the lack of near-term lot supply in the residential market.

“Lot inventory reached new lows in the third quarter and unequivocally represents a land sellers’ market,” said Ali Wolf, chief economist at Zonda. “Record low lot supply tells us it won’t be easy to backfill the pipeline in the coming months after the exceptional year for new home sales in 2020.”

Lot supply trended below 3Q19 levels in nearly every top market across the country. Atlanta remains the market with the most relative supply in the country due to local market dynamics and where the lots are available, but lots are still down double-digits year-over-year.

The markets that tightened the most on a year-over-year basis in 3Q20 were Nashville, San Diego, and Portland. San Diego and Nashville make up two of the three tightest markets in our index, while Portland falls more in the middle. San Francisco and Los Angeles, two traditionally undersupplied markets, posted substantial increases in their lot supply year-over-year. This is due to both a slowdown in starts due to the pandemic, as well as increase in vacant developed lots in more affordable areas.

“The hot housing market comes with a unique set of challenges. We should expect land prices to rise with multiple offers and for some builders to temporarily gap out on lots.”

Comments from land brokers

National
In some of the most high-demand areas of the country, the supply of lots through Q3 2020 was at a historic low and every data point indicates that this will continue through Q4 and into 2021 as demand for single-family and multi-family housing continues to soar.

Greg Vogel, Founder and CEO of Land Advisors Organization
Southern California

The appetite and aggressiveness of builders for land is the strongest I’ve seen this cycle
Justin Esayian, Senior Vice President and land broker at The Hoffman Company
I believe low rates will continue to support strong new home sales through 2021. Builders will be scrambling to replace lot supply for future years given the lack of new projects in the entitlement process.
Tom Doyle, Partner at WD Land
Covid has made a major shift in the homebuyer’s mindset, on where and what to buy for housing which is here to stay for a while.
Les Whittlesey, Founding Principal for WD Land
Activity in the Inland Empire now rivals the activity the coastal markets have enjoyed for several years. The exodus from one higher density market like Los Angeles to a lower density market like Inland Empire is only exacerbated by COVID-19 and the work from home trend.
Sal Provenza, Partner at WD Land. Comments are regarding the Inland Empire
After selling numerous high density infill sites to apartment developers over the last few years, most merchant apartment builders have taken a pause on new acquisitions. Slower lease-up, lower rents, tenant-oriented policy mandates, and lack of financing has sidelined some apartment developers, especially those who depend on third-party debt and equity. However, that pause created opportunities for homebuilders to entitle sites for townhomes that were previously destined for apartments.”
Curt Crandall, Partner at WD Land. Comments are regarding LA/OC coastal infill markets
Metro Phoenix
In the 40 years of owning Nathan & Associates Inc. I have never seen the demand for lots so high, the inventory of finished lots so low, and the resale market so tight. Our population and job growth are some of the best in the nation. The world is focusing on Arizona as a strategic place to move their company and/or your family. It will remain strong for years to come.
Nate Nathan, President at Nathan & Associates
Metropolitan Phoenix is experiencing a chronic shortage of new homes and lots coming out of Q3, largely due to in-migration to the region. The end of Q3 indicated that there was a 13-day supply of new homes selling for under $350k, where a typical market would have had a four-month supply of homes. The cautious approach by developers and builders over the past decade has resulted in this short-fall of new homes and lot supply as none of us expected this level of activity in 2020. I’ve not seen the area’s lot supply this low, or in such high demand.
Greg Vogel, Founder and CEO of Land Advisors Organization
Tampa Bay
Work from home is here to stay and it’s driving people to move to where they really want to live. Florida, and in particular Tampa Bay, is in high demand and finished lot supply is rapidly declining. As a result, we are now seeing major movement into more affordable secondary and tertiary land markets.
Nancy Surak, Senior Land Advisors/Managing Broker at Land Advisors Organization in Tampa Bay, FL
Charlotte
Supply has never been tighter with builders setting market sales records on a monthly basis.
Forde Britt, Charlotte MSA Advisor/Designated Broker for Land Advisors Organization’s Charlotte office

Methodology

The Zonda New Home Lot Supply Index (LSI) is built on proprietary, industry-leading data that covers the production new home market across the United States. The index values represent single-family vacant developed lot supply, lots that are ready to be built on, relative to equilibrium. Released quarterly, the New Home LSI provides an unrivaled look into the lot markets across the country, offering a current quarter snapshot as well as insight into the directional trend.

The New Home LSI is calculated based on each markets’ specific equilibrium as determined by our team of local experts and historical activity. The comparative current value is adjusted to capture the “true” months of supply figure by applying a greater weight to vacant developed lots in subdivisions with more starts activity. Each index value is associated with a phrase highlighting the current lot supply dynamics. A value of 100, represents perfect equilibrium, while a value of 125 and above equals “Significantly Oversupplied”, 115-125 – “Slightly Oversupplied”, 85-115 – “Appropriately Supply”, 75-85 – “Slightly Undersupplied”, and 75 and below – “Significantly Undersupplied.”

The foundation of the index is a quarterly release conducted by Zonda. It is necessary to monitor residential lot supply to understand how new home markets may be impacted by the incoming pipeline.

About Zonda

Zonda represents the housing industry’s leading provider of rich data and the industry’s top advisors for residential real estate development and new home construction. With products and services geared for homebuilders, multifamily developers, lenders, and financial institutions, we provide innovative solutions to maximize opportunities in today’s real estate development landscape. To learn more, visit zondahome.com.