Competition for Lots is Getting Fiercer

The number of lots available for residential building has tightened over the past year in the United States, according to the first quarter New Home Lot Supply Index from Zonda.

The LSI, a residential real estate indicator based on the number of single-family vacant developed lots and the rate those lots are absorbed, came in at 49.0 in Q1 2021, a 24.2% decrease from Q1 2020. The supply of lots declined 10.1% from Q4 2020 to Q1 2021.

Zonda says that builders are buying finished lots as quickly as they are available, while overall supply remains tight.

“The race to acquire lots is on as builders continue working to quickly get more homes on the ground,” said Ali Wolf, chief economist at Zonda, in a prepared statement. “Competition for lots is fierce, but demand is showing no signs of letting up, which is encouraging more building.”

Lot supply trended lower on a year-over-year basis in nearly every top market across the country. All top markets across the country remained “significantly undersupplied.”

Los Angeles, San Francisco and Baltimore saw the most tightening on a year-over-year basis as demand in suburban markets grew. Builders have had difficulty securing lots in these markets. Topography issues, and NIBYMs also put a cap on development.

Overall, the tightest lot supply in major markets was found in Los Angeles, San Diego and Baltimore.

“The silver lining in today’s extreme lot shortage is that it should be short-lived,” says Wolf in a prepared statement. “Builders have been aggressively buying land in different stages of development, and many of these lots will turn into homes for sale in the coming year or two.”

It’s no surprise that the supply of lots has tightened during the pandemic. According to a recent report from Redfin, urban single-family prices have jumped nearly 20% year-over-year to $286,000, which is faster than any other type of home and the biggest increase of record for those homes. 

This price appreciation brings some risk, though.

 The Federal Reserve Board of Governors recently pointed to some worrying signs in for-sale housing. Specifically, it noted that “the unusually large number of mortgage loans in forbearance programs and the uncertainty around their ultimate repayment” remain downside risks to the sector.