Gap between home permits, sales puzzles

August 12, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

Figure this one out.

A new report from the Baltimore Metropolitan Council yesterday said local builders pushed new single-family home-building permits up 18 percent in June, compared with June 1993 -- less than a week after another report said new home sales dropped sharply during the second quarter.

It gets stranger.

The council said permits for new nonresidential projects fell 76.5 percent in June -- but recent figures from the respected F. W. Dodge division of McGraw-Hill Inc. show local nonresidential construction contracts booming in May and June.

For now, call it a muddle.

"I look for turning points, but I don't see anything in the June data," said Josef Nathanson, an economist for the council. "The residential market is still on a course to have between 12,000 and 13,000 units permitted by the end of the year. Single-family seems to be in relatively strong shape. On the nonresidential side, [government and nonprofit companies] are providing much the engine, to the extent there is activity."

The odd point of the housing report was that permit activity was rising while new home sales fell 13 percent in the second quarter, compared with the second quarter of 1993, according to a report earlier this week by Legg Mason Realty Group.

Builders blamed the sales decline on higher mortgage rates.

Michael A. Conte, director of regional economic studies at the University of Baltimore, said a statistical aberration was to blame for the higher permit activity. He predicted the level of housing permits would fall in coming months to reflect the lower sales.

"The permitting is based on decisions made weeks ago based on sales that were made months ago," he said. "It takes a little bit of time while you apply for the permit."

Anne Madison, a spokeswoman for Ryland Homes in Columbia, offered another explanation for part of the gap.

She said builders often take out more permits than recent sales demand heading into the summer. She said many buyers time their moves to match their children's school calendars, and builders often boost inventory modestly heading into late summer so newly sold homes can be built in time for Labor Day.

"No builder would be pulling permits if they didn't feel they would have sales for them," she said. "We're headed into a faster sales season."

But Mr. Conte said the gap in the commercial construction figures is harder to explain.

"We're going to have to start really staring at this stuff," Mr. Conte said.

One partial explanation is that permits for commercial additions, renovations and repairs rose 109 percent in June, even while new construction stalled. Almost all of the gain in alterations came from one permit for $20 million of interior work on the new U.S. Health Care Financing Administration headquarters in Woodlawn.

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