New Jersey Homebuilding Permits Reflect Pessimism over Mortgage Troubles

By Richard Barrington
Local Lender Columnist
Oct 12, 2007
Amidst all the concerns about mortgage foreclosures and higher mortgage interest rates, a forward look at the New Jersey home building market suggests a steep slowdown in activity is in the making. Ironically, this slowdown is just the type of thing that can ultimately turn the market around.

New Building Activity Poised for Steep Slowdown

One way to get a look at what professionals think of the prospects for a real estate market is to look at new home building permits. Such permits are the leading edge of the future real estate market--permit activity will subsequently translate into construction activity, and ultimately into new market listings.

Year-to-date through June 30th, new housing construction permits for New Jersey are down 29% from their level a year ago. Given the homeowner weakness suggested by mortgage foreclosure rates, plus concern that higher interest rates will make housing even tougher to afford, this pessimism is somewhat understandable.

A Silver Lining from a Supply and Demand Perspective

The silver lining is that the decline in housing permits suggests that the supply of new housing in New Jersey will begin slow over the next year or so. From a supply-and-demand perspective, this may be exactly what the market needs to firm up prices. A little slowdown in supply may bring it in line with demand, and get New Jersey's housing market into a better balance for the long run.

Housing prices move in cycles. However tempting it may be to believe that prices are going straight up during good times, or straight down during bad times, the reality is that straight lines don't generally last long in economics.

Source
National Association of Home Builders

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.