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| Jacksonville’s Total Permit Overhang |
| Written by Jonathan Smoke | |
| 09.12.2007 | |
Discuss this article on the forums. (0 posts) Yesterday I covered the topic of new home inventory overhang and specifically looked at Jacksonville, FL. We saw that in looking only at single-family homes, Jacksonville had a clear bubble in permits from 2003 to 2005, but appeared to have pulled back significantly so that much of the inventory presumably would be worked off.I ended the post saying we would next dig into multifamily permits or what the total permit picture had to say. And here’s a wrinkle in housing market research. Single-family permits are permits for single-family detached for-sale housing, but they don’t tell the whole picture for the entire for-sale housing market as condominiums and townhomes are considered multifamily, but within multifamily permits there’s not an accurate way to differentiate for-sale from rental activity. You can take historical patterns in the percentage of multifamily permits that are typically for sale, which has been in the 20 to 25% range, but those numbers vary significantly. For example, in 2006 the for-sale component of multifamily permits was 45% nationally. Current percentages by market and smaller geographic areas are not available, so we know that bubble markets and especially coastal areas are likely to have had even higher percentages of multifamily for condos. While condos and townhomes are not perfect substitutes for single-family detached homes in most areas of the country, the definitely have an impact on inventories and pricing when they are significantly oversupplied. It looks like Jacksonville is one of those markets. In the following chart, which shows monthly actual permits from 2003 to August 2007 and Moody’s latest forecast through 2010, we can see that multifamily permits have been a consistent percentage of total permits in the Jacksonville market. We revised our model to look at total housing needs across single family and multifamily and to generate an expected level of total permits to compare to the actual and forecasted levels of total permits produced. The resulting chart below shows the expected vs. actual and it’s clear that a major bubble occurred in 2004 and 2005. While permits have declined significantly since their peak in 2005, the gap isn’t as big and the decline is not over. It’s easier to tell the extent of the disequilibrium from the following chart. )) According to our calculations, it will be mid 2008 before the massive accumulated oversupply is worked off. And since we know that this didn’t look as severe when we only looked at single family, we know that this is principally being caused by overproduction in condominiums. I will work on some index numbers to tell you how Jacksonville compares to other markets on permit overhang in my next post. 
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