A good indicator of building activity crossed into the “slightly undersupplied” category from the “significantly undersupplied” category for the fourth quarter.
The new data, from Zonda’s New Home Lot Supply Index (LSI) registered a reading of 81.6 in the fourth quarter, representing a 34.2 percent increase from the same period in 2024.
“Policy uncertainty, the current cost of living, student loans, labor market concerns, interest rates, home prices, changes to immigration, geopolitics and more have all slowed consumer demand,” said Zonda chief economist Ali Wolf. “When consumers aren’t happy, builders aren’t happy, and that’s what we are seeing in the data. Builders have scaled back starts in response to slower sales, which by extension, has allowed for lot supply to grow.”
The LSI is a residential real estate indicator based on the number of single-family vacant developed lots (VDL) and the rate at which those lots are absorbed via housing starts.
Zonda reported that while the lot supply loosened on a national level, 16 of the 30 markets analyzed by Zonda remained “significantly undersupplied” in the fourth quarter. Lot supply tightened the most in Minneapolis, Miami and San Diego. Conversely, lot supply loosened the most on an annual basis in Los Angeles/Orange County, San Francisco and Denver.
“Seeing a reduction in the number of upcoming lots, quarter over quarter, is a positive sign considering current market conditions,” Wolf said. “While ongoing lot development remains important, it’s equally important to maintain discipline. If lot development drops too sharply, there could be a serious shortage when consumers eventually return to the market. On the other hand, moving forward too aggressively also poses risks, especially since there are already many vacant developed lots available today.”
