Spotlight on Building Permits in Two Housing Market Areas
On a national level, building permits for privately owned single-family housing units plunged after September 2005; since then, building permits for single-family homes have recovered modestly.
In addition to the quarterly National Housing Market Summary and the 10 Regional Narratives, the team of economists at the Office of Policy Development and Research (PD&R) periodically release comprehensive housing market analyses of various areas across the country. By examining these reports, readers are able to get an in-depth look at how certain markets are faring when it comes to economic, demographic, and housing market trends.
One indicator that shows how certain housing market areas have bounced back since the housing bubble is homebuilding activity, especially for single-family homes. On a national level, building permits for privately owned single-family housing units increased from a seasonally adjusted annual rate of 1.185 million to 1.798 million from October 2001 to September 2005. After September 2005, single-family homebuilding activity plunged, hitting a low of 330,000 annualized building permits in early January 2009. Since then, building permits for single-family homes have recovered modestly. Similar patterns can be seen in two of the most recently released comprehensive housing market analyses compiled by PD&R economists for the U.S. Housing Market Conditions portal.
Between 2000 and 2005, homebuilding, as measured by single-family building permits, averaged 3,125 per year in the Portland-South Portland, Maine area. When the housing bubble began to burst and home sales slowed, building permits for single-family homes decreased by an average of 18 percent per year between 2006 and 2011. During the recovery period, as home sales increased and economic activity picked up in the area, homebuilding saw an upswing as well. Homebuilding permits increased by an average of 260 in 2012 and 2013, averaging 1,345 annually. Over the past 2 years, however, homebuilding in the housing market area has decreased slightly, partially due to extreme winter weather in early 2015.
The sales market in the Portland-South Portland, Maine area is currently balanced, meaning there is an adequate supply of homes to meet the demand for buyers in the area. However, if the housing market is expected to meet the projected demand of 4,000 new homes over the next 3 years, homebuilding activity will have to increase from current levels.
Similar to the trends seen nationally and in the southern Maine housing market area, the Greensboro-High Point, North Carolina area saw rapid homebuilding activity between 2000 and 2005. Single-family residential building permits averaged 4,525 annually in this period, peaking at 5,220 in 2005. After the housing bubble burst and home sales declined, building activity tumbled, decreasing by an average of 23 percent per year between 2006 and 2011. In 2012 through 2014, single-family homebuilding increased by an average of 12 percent annually, averaging 1,356 permits per year in this period.
As the data show, single-family homebuilding is still much lower in recent years compared with the peak of 5,220 in 2005. Part of the reason why single-family construction has recovered slowly in this housing market area is that there have been high levels of vacant, for-sale existing homes in the market. This inventory, however, has begun to shrink, paving the way for increased potential housing construction in the area. PD&R economists project that over the next 3 years, there will be a demand for 5,250 new homes in the Greensboro-High Point area. Further construction of single-family homes will be needed to ensure that housing supply meets demand.
During the run-up to the housing bubble, one of the claims that many commentators made was that there couldn’t be a national housing bubble; the differences in housing markets were regional, and a bust in one market wouldn’t affect others. As we have seen, however, national trends in the housing market did affect regional housing markets because the national trends in the early- to mid-2000s had such a strong impact on the national economy. In addition, the use of unsustainable mortgage products and investor speculation were increasing rapidly in many regional markets during the same period. The federal government subsequently intervened with national programs to support a housing recovery, which helped turn the regional markets around. The national trends, however, still did not impact all areas of the country. As described above, the pattern of homebuilding activity for single-family homes was similar in the Portland-South Portland Maine market, in the Greensboro-High Point, North Carolina market, and at the national level. In all three markets, there was a period of high levels of construction followed by a sharp drop and then a modest recovery in homebuilding activity. Although it may be good that homebuilding has not recovered to levels seen during the housing bubble, increased construction activity may be needed to meet the potential demand for single-family homes in the next few years.