Smart Borrower Blog

Housing Building Permits Plunge

Aug 17th, 2007 @ 8:05 AM by Alden Smith

With all the fuss in the market about credit and sub-prime loans, the fallout is trickling down to other levels of the market. Builders are becoming a bit cautious about new construction. The rate of building permits issued dropped last month to their lowest points in more than a decade. The housing market was already in a state of decline from a year ago.

Statistics for new permits show that in all sectors of the country, rate of new construction is falling. With credit tightening up and people that a year ago wouldn’t have any problem getting a loan, construction companies are not applying for permits for new builds. The stats line up like this from one year ago in July:

* 12.5 percent decline in the Northeast
* 22.2 percent decline in the Midwest
* 25.6 percent decline in the South
* 20.7 percent decline in the West

Michelle Meyer, an economist with Lehman Brothers, reports that “They’re (builders) aware of what’s going on in the mortgage market, and they’re concerned about it. And that’s adding to pessimism among builders.”

Yesterday, Countrywide Financial, which is the nation’s largest loan lender, reported that it had tapped 11.5 billion in emergency funds from 40 of the world’s banks to shore up it’s finances. On the heels of the troubles at American Home Mortgage, this is not a good sign for the mortgage market.

The trickle down effect of all this fuss and bother is this – with credit tightening up and people unable to obtain mortgages, builders are hesitant on beginning new construction. Because people cannot obtain mortgages, home sellers are being forced to drop the purchase price of their homes. It is not uncommon to see homes that have been on the market for a year. With the inability to sell a home due to these circumstances, the market is further depressed. Consumer spending will fall off, and the economy will suffer in many sectors.

There is no quick fix for this. The market needs to correct itself. Richard F. Moody, chief economist with Mission Residential, a real estate investment firm in Austin, Texas, reports that “The bottom isn’t here. It’s not even in sight yet.”

Housing is one of our most important assets. Surely, progress will be made to correct this issue in the mortgage market. I think that the mortgage companies will figure out how to turn this situation around, and yet still protect themselves. Again, we must take a “wait and see” attitude…

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