Housing downturn spilling over

Robert Lindsey was not surprised by new 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 Lindsey, general manager of Signature Drywall Inc., in Sacramento, Calif., which installs drywall in new homes and apartments.

In 2005, the firm raked in some $30 million in sales. Last year, sales were less than half that, and this year 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. On Monday the Commerce Department said residential construction spending fell in April for the 26th month in a row.

Like falling dominoes, when construction stops, the surrounding restaurants, grocery stores 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 Hermosillo, whose sales are half of what they were last year.

One measure of how much the homebuilding 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.

They have seen business plummet as homebuilders scaled back construction. Many subcontractors have slashed payrolls.

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. 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 they employ.

In Miami, where there is more than 3 1/2 year supply of existing homes on the market, general contracting firm O'Steen & Co., also has sliced its payroll.

The company, which handles framing, concrete installation and virtually all other aspects of residential and commercial construction, employs about 40 people, but like similar firms, its number of hires can vary depending on how many projects the company has going.

“Under normal circum- stances it should be 200,” said owner Raymond O'Steen. “From a year ago, I would say the volume of business is probably off 60 percent.”

Head hunters say workers have fled California for Utah, Texas and other states where there's a better chance to get work in homebuilding.

So many trade contractors in the hardest hit areas say they're struggling to stay in business and hold on to their best talent however long it takes to ride out the downturn.

Greg Colgate, president of California Tile Co., in San Diego, estimates he'll do about 20 percent of the residential units his company did last year.

He said, “We're just struggling to not have to cut any deeper this year.”