Saturday, December 15, 2007

Building Materials and the Housing Downturn

If you're a builder, about to sink millions into a new development, what's the first thing you do? You make sure you can get a permit to start developing the land. That's why experts consider the rate of housing permit applications such a good hidden indicator of the future economy.

Helge: This starting point comes from US.

When it's going up, the economy will likely go up. Because the property industry drives a huge chunk of the job market. But also because when applications are soaring, it means that a boom is exactly what builders -- who live and breath by predicting the future economy -- are betting on.

Helge: We've been experiencing the same. When building goes down, so does the job market.

What does it say when building permit applications start to plummet?

It means builders see plunging home sales, a tight economy, and even a recession on the horizon. Pay attention. Because this is exactly the signal I'm showing you in the chart above. Early last year, the total new number of housing permit applications fell off a cliff.

Helge: We have to face this now.

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