Last we discussed How Job Growth Plays a key element in Market position (Analyze 2) today let’s discuss how Building permits plays a role.
Building Permits: (For reference we are discussing the number of permits being pulled at the zoning office for new construction)
As an area experiences tremendous growth we can monitor the building permit activity to get a snapshot of the market conditions and where it is heading. When a market heats up and growth is all around us, building permit activity rises as well. This is where we can see the number of building permits in the market increase.
As we see the building permits reaching higher and higher peaks of activity our radar should be picking up these indicators. The old saying “that which goes up must come down” can give us some of the best clues of all. One of the first signs that a market is cooling off is the building permit activity starts to fall. When this happens we may be approaching a turn in the market.
You will want to monitor activity in the market you are looking to invest in to see what peak activity looks like. When investing we want to have lower building permit activity as this represents a market that is cool. Your best deals are in a cool market and when the building permit activity starts to rise we know the market is gaining momentum. “Momentum is where wealth can be created” Markets that have tons of building going on sounds much more impressive and may have merit however watch out for overbuilding as this will lead to oversupply and we all know what over supply does to price.
Example of Markets with cool building activity:
Montgomery Alabama: 24% of peak activity
Boulder Colorado 11% of peak Activity
New Orleans Louisiana 38% of peak activity
Austin Texas 54% of peak activity
Dallas Texas 39% of peak activity
(Source John Burns R.E. Consulting)