39% Leap in Building Permits Not as Cheery as It Sounds
One of the most important ways to predict the future of the residential real estate market is to look at how many building permits are being “pulled” for new housing construction. Builders generally begin construction within 30 to 90 days of receiving a municipal building permit, so economists look to building permit data to predict all sorts of real estate trends.
Getting a clear picture of the future from available statistics isn’t a simple task, though. But here we go.
Los Angeles--believe it or not--is expected to post the biggest jump in the nation from 1994 to 1995 in residential building permits, up a whopping 39% this year in the Los Angeles-Long Beach area, according to U. S. Housing Markets, a research arm of Lomas Mortgage Inc.
Sounds great--until you look a little further. The increase in building permits this year is mostly because last year the number of new building permit applications nearly ground to a halt after the Northridge earthquake. Last year, Los Angeles ranked dead last in a 50-city survey of single-family building permits.
Los Angeles also ranked No. 39 in total building permits last year with 7,754 building permits issued. This compares to 41,237 in Atlanta, 33,375 in Chicago and 27,760 in Las Vegas. Even if Los Angeles does post the expected 39% increase this year, it still will rank 23rd in the nation, behind much smaller communities elsewhere. The 10,800 expected building permits in 1995 will also be well below the 21,775 annual average for 1989 to 1993.
“Thirty-nine percent of nothing is still nothing,” said Brian H. Bragg, editor of U. S. Housing Markets, based in suburban Detroit. “Los Angeles has been so bad and so down for so long that any increase becomes a sizable percentage change.”
Still an increase is better than a decrease and “it indicates that Southern California has probably bottomed out and things won’t be getting any worse,” Bragg predicted. “Building permits are second only to job formations in predicting the strength of the housing market.”
Besides looking at the number of new units permitted, it is also valuable to consider the estimated construction value of new building permits.
In the first five months of 1995, the value of new single-family building permits in Los Angeles County totaled $378 million. This compares favorably to the $294-million total for the first five months of 1994, according to the Construction Industry Research Board in Burbank.
The city of Los Angeles and unincorporated areas of Los Angeles County posted the strongest activity within the county, followed by Palmdale, Azusa and Lancaster, respectively. The real estate market in Palmdale and Lancaster has been suffering greatly from job losses and foreclosures, but the amount of available land and the sheer volume of new construction there make these communities among the most active in new home building.
In the city of Los Angeles, there were building permits issued for 310 dwellings, 26 duplex units, 342 apartments and 41 condos during the first four months of 1995, according to the city’s Department of Building and Safety. These building permits will create a net gain of a paltry two new housing units in the city of Los Angeles, because of 717 units that were given demolition permits during the same four months. Coupled with the permits issued for altering several structures so as to remove 22 units, Los Angeles will actually lose 20 residential units, despite all the building permit activity.
In Ventura County, the value of new single-family building permits is way ahead of numbers reported last year. The value of permits totaled $130 million for the first five months of 1995, compared to $79 million for the same period in 1994. New multifamily building permits are down, though, from $32 million in the first five months of 1991 to $8 million in the first five months of 1995.
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The areas with the strongest recent single-family building permit activity were San Buenaventura, Thousand Oaks, unincorporated Ventura County and Simi Valley, according to the Construction Industry Research Board.
What really counts is how well new homes are selling--for this reflects both supply and demand, said Robert Bray, managing director of The Meyers Group in Los Angeles, which follows housing sales and advises home builders.
The Meyers Group is predicting an increase in home sales in Los Angeles County this year for the first time since 1990, Bray said. Ventura County home sales will also be up, Bray predicted. He expects home and condo sales in Ventura County to total 1,800 this year--about equal to peak sales reported in 1990.
The Antelope Valley, Bray said, will continue to suffer, though. In the first quarter of 1994, Bray said, 460 new homes and condos were sold. This was down from the 583 new residences sold during the same period last year and way down from the phenomenal 5,500 residences sold in 1988.
