Slowed Permit Levels are Part of the Housing Cycle

Single-family permit activity has declined so rapidly in this cycle that, nationwide, builders are building 63 percent fewer homes than at the peak. Those companies that have declined by less than this amount are picking up market share.

Permits and the Housing Cycle

The slowing in construction activity in this cycle has been significant. Total construction activity has declined 54 percent from its peak level in September 2005 to just over 1 million permits as of January 2008. The single-family component of permit activity has declined at an even more rapid rate, falling 63 percent to 673,000 annualized permits in that same time.

Such a large swing in permit volume is not unprecedented and has occurred several times in the past 35 years. In previous downturns, single-family permit activity declined by the following amounts:

• 67 percent from April 1978 to October 1981
• 54 percent from October 1972 to January 1975
• 51 percent from February 1987 to January 1991

The good news for builders, suppliers and contractors is that we are already at the historical lows, and construction usually rebounds pretty quickly, as shown in the chart on page 12.

Much of the rest of the county has witnessed permit declines in the 40–60 percent range in that time, with only the Carolinas, Georgia, the Gulf states and Southern Texas faring better, as the chart above shows. Clearly, all markets have been affected. (The data in the chart however is not seasonally adjusted; if it were, we would expect the declines to be even greater.)

The dramatic run-up in single-family construction during the last up-cycle has resulted in a substantial correction in permit activity and it will result in a dramatic change in the competitive environment, with large builders picking up market share until startup companies or recapitalized existing companies begin to compete again.