Photo by Christina Allan on Unsplash

If you thought snagging an existing home in Los Angeles’ competitive real estate market was tough, then imagine trying to purchase a vacant lot for a new home in what has become the nation’s most undersupplied market. 

According to the Zonda New Home Lot Supply Index (LSI) for the first quarter of 2021, the number of vacant developed lots for single-family homes in Los Angeles and Orange County plummeted 61 percent year-over-year. 

“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 Economics. “Competition for lots is fierce, but demand is showing no signs of letting up, which is encouraging more building.”

Los Angeles’ index value, with a reading of 25.1, is calculated by comparing the current number of ready-to-build lots to the market’s equilibrium, which is based on historical averages and insights from local experts. A value of 100 is considered perfect equilibrium, while anything above 125 is “significantly oversupplied” and anything below 75 is “significantly undersupplied.”

The nearby Riverside/San Bernardino market fared slightly better with an index value of 42.0, down 40 percent from a year ago. Projected to be one of the hottest housing markets in the country in 2021, Riverside has experienced an influx of buyers from the Los Angeles area seeking comparatively affordable homes.

The next tightest market after Los Angeles was San Francisco, with vacant lot supply down 47.7 percent annually, followed by Baltimore, which logged a 46.9 percent decline over Q1 2020. Across the country, inventory dwindled in 29 out of the 30 markets analyzed by Zonda, and all of the top markets were reported to be “severely undersupplied.”

The national index hit an all-time low of 49.0. This marked a 10.1 percent drop in single-family lot supply compared to the previous quarter and a 24.2 percent decrease on an annual basis. While this might seem like bad news for regions that are already facing a housing shortage, Wolf says there’s a “silver lining” to the current market conditions.

“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,” said Wolf.

Supply shortages in the resale market, favorable mortgage rates, and the prevalence of bidding wars have prompted many buyers to turn to the new construction market. Builders are now scrambling to keep up with demand, purchasing vacant lots wherever they can.

However, Wolf expects this phenomenon to be “short lived,” as mortgage rates are forecast to rise through the rest of 2021, cooling housing demand.

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