- The Washington Times - Tuesday, June 3, 2008


Robert Lindsey was not surprised by data last week that showed new-home sales have fallen more than 40 percent from their peak almost three years ago. He can tell from his company’s bank account.

“We’re literally losing money every month,” said Mr. Lindsey, general manager of Signature Drywall Inc., in Northern California, which installs drywall in new homes and apartments in the Sacramento and San Francisco areas.

In 2005, the firm took in some $30 million in sales. Last year, sales were less than half that, and this year, Mr. Lindsey hopes he can make $8 million.

“It’s kind of like bleeding to death,” he said.

A lot of his competitors feel that way. The Commerce Department said Monday that residential construction spending fell in April for the 26th month in a row.

The housing industry is not monolithic. Yes, there are major players, but for every big developer there are hundreds if not thousands of smaller companies engaged in building houses. And when those companies are hurting, the pain - in the form of job losses and weak sales - spreads across an economy teetering on the edge of recession. California, Florida, Arizona and Nevada, which are all heavily dependent on the housing sector, are among the 11 states that have already fallen into recession, according to Moody’s Economy.com.

“The collateral damage from a lost construction job is greater than in many other industries,” said Mark Zandi, chief economist at Economy.com. “For every job lost in construction, you generally lose a little over one more job elsewhere in the economy.”

Like falling dominoes, when construction stops, the surrounding restaurants, grocery stories and other businesses get hit.

Guillermo Hermosillo’s car dealership in Calexico, Calif., sold as many as 30 vehicles a month during the real estate boom. Many of them were pickup trucks bought by construction workers flush with cash from helping to erect new homes around the city east of San Diego along the U.S.-Mexico border.

“Then the housing [market] crashed and everybody’s losing their homes. These guys are left without jobs. You don’t see them anymore,” said Mr. Hermosillo, whose sales are half of what they were last year.

One measure of how much the home-building industry has contracted since the high-flying days of the housing run-up: Construction permits for new homes peaked at about 2.3 million in September 2005 - about 1 million more new units than were reported in April.

Everything that goes into building a home - from plumbing fixtures to steel, lumber and masonry to the transportation needed to move construction materials and the accounting and other financial services involved in selling the home - is tied to an industry that can suffer job losses when housing construction slows.

Among the hardest hit are residential trade subcontractors - firms that handle everything from framing and drywall to painting and electrical work.

They have seen business plummet as home builders scaled back construction. Many subcontractors have slashed payrolls. Some are trying to make a transition into commercial construction, only to be rebuffed or forced to lower bids dramatically to gain entry. This further squeezes the market for established builders.

In California alone, subcontractors have laid off, on average, up to 80 percent of their staff, according to the California Professional Association of Specialty Contractors in Sacramento, which mostly represents firms engaged in new home construction projects. Kelly Bice, 48, had been working as vice president of construction for San Diego real estate developer Keystone Communities Inc. for more than seven years before he lost his job in February when the company filed for bankruptcy. Mr. Bice, who lives in Murrieta, east of Los Angeles, was earning about $136,000 a year with bonuses. Now he is scraping by on $500 a week as a consultant on a home renovation project.

“I’m living on my savings,” he said. “That’s just buying the groceries.”

Nationwide, the number of vacant homes is at a record high, and is expected to rise for the rest of the year as foreclosures add to the glut of unsold properties.

The slowing economy, coupled with rising gas and food prices, has dimmed the prospect of a pickup in sales this year. And that means potentially less work down the road for subcontractors and the trade workers.



Click to Read More

Click to Hide