Building permits down in Clark and Floyd Counties: Is bad good?

"The Great Recession of 2007-2009” began in housing and spread to the broader real economy. An abundance of credit drove housing prices to unprecedented levels, and these higher asset prices contributed to additional consumer spending. The combination of a 14,000 Dow and equity in the home made the consumer feel very wealthy, and the commercial real estate sector was the ultimate beneficiary of the housing-financed consumer spending. We needed more strip malls and other places to spend money from the equity ATM. Consequently, commercial real estate will likely feel the impact of the retrenching consumer.

We’ll take this week to examine building permits in Floyd and Clark counties, and we have price data from the National Association of Realtors. As you can see from the permits graph, building permits have fallen off dramatically. During the height of the construction boom, total annual permits for Floyd and Clark were close to 1000. During 2009, assuming first quarter activity continues, building permits for 2009 may not exceed 200 in either Floyd or Clark counties. Monthly building permits are quite volatile, and it is definitely possible for permits to increase as we move through 2009.

While one may view this as negative news, there is a positive component regarding the current level of permits. The construction and real estate sectors are certainly adversely impacted, but the reduction in permits will allow existing housing stock to clear the market and ultimately position Floyd and Clark more favorably down the road.

The National Association of Realtors released metropolitan real estate prices for the first quarter of 2009. As you can see below, median prices for Louisville metro declined by 8% from the first quarter of 2008 to the first quarter of 2009. Nationally, prices declined by 14%. So while Louisville metro price declines have not been as severe, we are not immune to the national real estate story.

Source:  State of the Cities Data System

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This information is provided by

Uric Dufrene. 

Uric Dufrene, Ph.D. holds the Sanders Chair in Business in the School of Business at Indiana University Southeast.  He conducts research on local and regional economic trends, and teaches corporate finance at the undergraduate and graduate levels.   He previously served as dean of the School of Business.