Building permits are among the carefully watched numbers issued by the real estate industry each month. Permits are needed in most jurisdictions before individuals or contractors can break ground. Therefore, they are a reasonable indicator of future home construction. The data on permits is issued by the Commerce Department.
Building permits have fallen in most months since the housing crash began in 2007 -- a trend that continues today. In the first half of 2005, slightly over 1 million permits were issued; there were fewer than 300,000 in the first six months of this year. Some states have seen an 80 percent decline in new permits.
Building permits are not enough, in and of themselves, to mark a slowdown. Their number in relation to the total amount of existing homes is also an indication of the state of the housing market. Consider that in a large state like California, across all towns and cities, just over 20,000 permits were issued during the first six months of this year. The number of permits may seem like a lot for a weak housing market, but it's negligible when compared to the 13.6 million existing homes in the state.
24/7 Wall St. looked at the total number of building permits issued by each state for the first half of the year. We then identified the states that had the lowest percentage of new housing permits when compared to the total number of housing units.
Surprisingly, our list of states where few recent permits have been issued differs from the typical list of the worst housing markets. California, Nevada and Florida are always on those lists because many homes are vacant and home values continue to drop. But the three are not on this list. It may be that prices have dropped so low in these markets that home inventory has begun to move, even if only tentatively. Instead, markets where housing permits are very small in relation to total homes are markets in which builders have abandoned any hope of near-term sales.
The 24/7 Wall St. analysis is another look through the prism that is the collapsing residential real estate market. Most data the public sees is based on home prices, number of homes sold or foreclosures. Housing permits are a way to look ahead at what is likely to happen in the markets in the next year. Once a permit is issued, the builder has no obligation to begin or complete the construction. This additional risk has a compounding effect.
Click through the gallery to see the states where no one wants to buy a new home.
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