Builders Stockpile Lots as Many Pause to Consider Next Steps

An increased number of vacant lots are sitting unused as builders cautiously consider their building plans for the year ahead, a trend that could quickly reverse as 70% of builders plan to increase their number of starts in 2024.

Zonda’s New Home Lot Supply Index showed 62.4% more lots were available in the third quarter compared with the same quarter a year ago. The index is back to mid-to-late 2020 levels, before the pandemic-related feeding frenzy saw vacant lots snapped up as soon as they were available.

Compared with the prior quarter, supply increased by 1.4%. Even so, the data still reflects a “significantly undersupplied” market nationally.

“Builders need lots to build homes,” says Ali Wolf, chief economist at Zonda. “Building was outpacing the ability to replenish lots during the height of the housing market throughout late 2020 to early 2022. With total starts below 1 million for the past 12-plus months, some health has returned to the land and lot market. In fact, overall vacant developed lot activity has trended up for the fifth straight quarter.”

The index is calculated by considering the total vacant developed lot supply and adjusting it for overall starts activity. Because housing starts are down compared with the past couple of years, there has been an accompanying uptick in the index.

Lot supply loosened in most major metropolitan areas in the third quarter, with 29 of 30 increasing year over year. Lot inventory is still categorized as significantly undersupplied in most markets, but the loosening trend is broad based.

Total upcoming lots for the third quarter decreased 19% year over year and fell 7% from the prior quarter. The largest declines among the total upcoming lots came in the streets in stage, which fell 34% from the same period last year. The pullback in total upcoming lots in the third quarter corresponds with the market demand pullback of the past 18 months.

The largest share of total upcoming lots are in the excavation stage, making up 62% nationally. These lots have an expected delivery between 2024's second and third quarters (the range represents different time frames from local entitlement processes).

“When looking at land and lot supply, we like to see how closely trends align with sales,” Wolf says. “The third quarter total upcoming lots data is down 19% year over year given the stop-go development of an uncertain market. However, the most recent release captures a 13% increase compared to the fourth quarter of 2019. This tracks with the fact that current new-home sales are outperforming pre-pandemic levels.”