Metro Knoxville Building Permits and Phantom Inventory (Loudon: sales, real estate)

[pdq]

I was reading an article in the News Sentinel about building permits. I was curious as to what others thought about the number residential building permits being down? Metro Knox area is down 9.3% YTD. Blount count is down 49%, Loudon County down 36%, Monroe County down 39%. Knox county is up 5% after being down last year 10.5%, so still down 5.5% compared to 05.

Building permits are traditionally the leading indicator of the future health of the RE industry.

A friend of ours is looking for a new house now, actually looking for a "deal" on a new house. She told us that two of the homes she looked at weren't what she wanted but the realtors told her that they had several more in the same neighborhoods that were off the market. What do you make of this phantom inventory? Inventories must be much higher than even the record high numbers are showing. How long can builders afford to keep these off the market?

[goodbyehollywood]

My guess is, that depends on the builder. Many local builders are well-to-do; others have made a killing in recent years. I don't think the Testermans, Schubert or some of the other higher-end builders are hurting.

Some builders would rather hold inventory, if their idea of a "deal" differs from buyers. They want to protect prices in certain neighborhoods and not lower the comps for a short-term trend.

Other builders and other neighborhoods have different scenarios. If this "blip in the market" isn't short-term in Knoxville, then the practice might change and we might see more "fire selling." But in one neighborhood I know, the builder is holding a house on a view lot back until spring. He's stalling putting on the finishing touches, because he doesn't want to list in this environment. He feels confident about spring.

Is he right? I have no clue. Time will tell... and spring may well be the tipping point, one way or the other.

[pdq]

It's true that some builders/developers will try to hold out as long as they can, but there is great downward pressure with inventories through the roof and sales declining.

The building permit decline is the most troublesome. This is the key indicator and shows that future growth will be even further negative.

Do any other realtors have ideas they can share?

[goodbyehollywood]

I'm not a realtor, just a property owner.

[pdq]

Not a realtor? Hmmm, well you sure know a lot about the industry. How do happen to know so much?

[goodbyehollywood]

Nope, not a realtor-- scout's honor. I just love real estate. I've moved a lot and bought and sold a lot of houses. My dad has always owned rental properties and I do, too.

I could not be any worse at picking stocks, but I have a good track record with real estate, so I'm looking there for my retirement. I have a funny feeling Uncle Sam isn't going to have much social security left for me when my time comes!

[Beretta]

Originally Posted by goodbyehollywood

Nope, not a realtor-- scout's honor. I just love real estate. I've moved a lot and bought and sold a lot of houses. My dad has always owned rental properties and I do, too.

I could not be any worse at picking stocks, but I have a good track record with real estate, so I'm looking there for my retirement. I have a funny feeling Uncle Sam isn't going to have much social security left for me when my time comes!

I love it too! However, you seem to be really good at it and your posts are interesting. I don't mean to insult what you are doing now; but you sound as if you would be extremely successful in the real estate/development, etc. business.

[goodbyehollywood]

Thank you, SmokyMtnGal!

Well, I do it on the side. And I write and produce about home stuff for a living. So part of it's hobby, part of it's investment and part of it's business-- luckily, all of it's fun. At least for me!

[pdq]

goodbyehollywood,

Well you may not technically be a realtor but you are in the business. Being such what is your take on building permits tanking so badly? I mean those are huge declines. If developers felt good about the future they would be building like crazy. They make no money unless they build, it's what they do. They know this game and they are choosing to not play. Ideas? Anyone?

[gemkeeper]

I know from past experience with building homes that many builders must use payments on new homes or a client's home in progress just to buy lots, materials and labor for the next waiting project. If those funds aren't coming in, many builders aren't going to go out on a limb, pull permits and start another spec home with his own or bank financing.

The phantom inventories - that is a stumper, unless their reasoning is to first have their less sellable properties on the market hoping that just the lack of availibility will sell some of them. If they put out the homes with the views, bells and whistles, etc. that they know will sell in a NY minute, then the lackluster homes are still sitting vacant chewing up lost revenue. Hmmm. Would like to hear from a builder on this one.