Contractor Update

An unexpected new twist could seriously affect the remodeling, building, and home repair industry. As homebuilders finish off current projects, new home construction will continue to plummet as the glut of existing properties will take time to evaporate. And, as home prices drop over the course of this year and next, available home equity will also dry up. With less equity, homeowners will not be as willing to spend on renovation projects. Another expected trend has been workers and companies transitioning out of new home construction and into remodeling and home repair.

All of those factors were predicted and are coming true. However, the unexpected new twist is what really has economists worried. Over the course of the past two months, the credit industry has severely tightened their lending policies. Because of all the sub-prime loans that have and will continue to go bad, lending institutions have become afraid to approve new loans. Zero-down mortgage products have disappeared. Even people with good credit and down payments can't get a home loan. Their fear goes beyond mortgages, too. People with great credit scores and equity in their homes are being turned down for renovation loans. Others may be able to get a loan but the interest rates are so high that many are walking away.

With credit becoming more and more unavailable, it will continue to drag down the overall housing market. Not only are potential buyers waiting for prices to come down out now they may not even be eligible to get an affordable mortgage when prices do drop. This can only hurt the overall economy. Experts are suggesting the Federal Reserve may drop rates again at their next session in September, but it may be too little too late. If the housing market continues to affect jobs outside of real estate and lending, it could mean a very long and very tough 2008. A recession could be just around the corner.

RELATED ARTICLE:
Top 10 Tips to Surviving Economic Downturns

MORE CONSTRUCTION AND ECONOMIC NEWS:
From the AP: "WASHINGTON -- Construction activity plunged in July by the biggest amount in six months as spending on homes fell for a record 17th straight month."

"The Commerce Department reported Tuesday that construction spending dropped 0.4 percent in July, compared with June, the weakest showing since a 0.6 percent fall in January."

From Bloomberg: "Homebuilders are scaling back to try to trim the glut of unsold residential properties even as companies are still adding offices and factories. The downturn may steepen as lenders make it tougher and more expensive to get financing following the sell-off in credit markets in August."

Also from Bloomberg: "So far, the Fed has refrained from reducing its benchmark interest rate, using other tools to ease tightening credit conditions."

"Federal Reserve Chairman Bernanke and his team lowered the discount rate, for direct loans to banks, by half a percentage point on Aug. 17. The main target rate remains at 5.25 percent."

"Officials acknowledged in their statement that risks to economic growth had 'increased appreciably.'' They next meet Sept. 18, where investors anticipate they will lower rates at least a quarter point."

"The Fed chief said earlier in his opening speech to the conference that the Fed 'will act as needed' should a sustained tightening in credit threaten the economy."

Labels: Construction Industry, Construction News, Construction Trends, Small Business Advice

From Financial Sense Online Market WrapUp: "The markets were down sharply yesterday on negative news from big retailers indicating the housing spillover is getting worse, not better. Yesterday Home Depot lowered its 2007 earnings expectations, announcing earnings per share for the year would drop 15%-18%, greater than the 15% drop previously announced in May. "

"'We look at the overall market and there's still a correction that lies ahead of us,' Chief Executive Frank Blake told analysts. 'But we're pretty far ahead in the correction process.'"

"Shedding light on how bad things are for Home Depot, same-store sales are expected to tumble in the mid-single-digit range, marking the second time in Home Depot’s history that it has seen negative same-store sales. Total retail sales are expected to slide 1%-2% for the year, greater than the 0%-1% originally estimated."

"Also weighing the markets down yesterday was Sears announcement that second-quarter earnings will be in the $1.06 to $1.32 a share range, roughly half Wall Street’s call of $2.12 a share. Sears reported that same-store sales fell 4% at U.S. Sears stores, with declines witnessed across most categories and the greatest weakness seen in home appliance sales. "

"Durable good sales, such as home appliances, have been steadily loosing ground to nondurable goods sales, such as food and beverage, as the economy slows, and the poor home appliance sales at Sears comes as no surprise and does not look to reverse course any time soon."

Labels: Construction Industry, Construction News

Finding new clients is expensive. That's not news. You have to spend money to advertise in the yellow pages, to make flyers, and to buy leads. All this just to let people know about your services. Businesses that succeed and grow don't strive to only find new clients. The goal should also be about retaining previous customers. You know these past clients well and you know they're willing to pay for your expertise because they have already done it.

How Do You Retain Customers?
Don't let them forget about you. If you have done good work for them and treated them fairly, that is a great start! But sometimes they may not think of you for their next project or service call. Whenever you can, set up maintenance contracts or schedule yearly appointments to return and inspect your work. When they sign their initial contract, ask them if they would like to receive coupons or discounts before you release them to the public. Obtain email addresses and send out a regular newsletter. A newsletter can contain "Before & After" pictures on a recent project, any new awards or recognitions for your company, and a list of tips for your clients about the service you provide.

Even sending out holiday or birthday cards and useful gifts (magnets, pens, T-shirts) will keep your name fresh in previous clients' minds. A lot of these tips can take up valuable time and money to see through. But consider - how much does it cost for a new ad in the phone book? These things do not need to be done every day or every week. Small segments of time can be taken up each month or each quarter to make it happen. You may be in the position to hire someone to help. To do so will more than likely cost less than attracting the same amount of revenue from new customers.

If you cannot manage any of these tips, you can still make sure they remember you. Provide your regular quality work on each job, but also give them excellent customer service and keep an open line of communication during every phase of work you do for them. They will remember you when they realize that you are not taking them for granted.

RELATED POSTS:
Constructive Criticism
Top 5 Ways to Expand Your Business
Top 7 Tips for Great Customer Service

Are you a contractor or service professional looking for more business? Construction Deal could be another tool in your marketing toolbox. Register with us for free to see if we have any job leads for your company, in your area. And bookmark our Contractor Update blog for additional tips, trends, and construction news.

Labels: Construction Industry, Small Business Advice

From Florida Today: "The housing market in Brevard County is doing better than some markets in Florida, and doing worse than others, said Franck Kaiser, chief executive officer of the Home Builders & Contractors Association of Brevard."

'Because of the housing slowdown, small homebuilders like in Brevard County like Bruce Pearce have been forced to focus on home repair and remodeling jobs."

"Pearce, owner of Talbott Construction Design Inc. in West Melbourne, said he may get out of homebuilding if business does not pick up because it is hard to compete with large corporate builders in a slow market."

"Kaiser said homebuilders generally have dropped prices for new homes, including taking losses on some homes to clear out their inventory."

The Herald Tribune reports from Florida. "If you need evidence of how the slumping housing market is impacting the local economy, look no further than Port Manatee. Shipments of lumber, plywood and fencing materials that exploded during the housing boom have dropped off significantly during the bust."

"'The market crashed and no one needed plywood,' said Capt. Rasmus Okland, terminal manager for Port Manatee’s largest forestry product importer. 'Prices have come down and stayed down, and consumption remains low.'"

Labels: Construction Industry, Construction News

"The Home Depot Inc., the world's largest home improvement store chain, cited erratic weather and continued weakness in the housing market as it reported Tuesday a 29.5 percent drop in first-quarter profit."

"'While we expected a tough quarter, this was worse than we expected,' CEO Frank Blake said in a conference call with analysts. He said the housing market continues to be a challenge, and erratic weather conditions across the United States negatively affected the company's spring selling season."

"Blake said Home Depot is not expecting any 'near-term market improvement.'"

The Canadian Press. "Forestry company Tembec Inc says it will shut down its Kirkland Lake, Ont. engineered wood products mill for at least two months to cut inventories because of the slumping U.S. housing sector."

"'Demand for lumber is down sharply, driven primarily by the dramatic decline in the level of housing starts in the United States,' said Dennis Rounsville, president of Tembec's forest products group. 'This decline in demand has resulted in both lower prices for lumber and reduced operating rates in sawmills across Eastern Canada.'"

Labels: Construction Industry, Construction News

From Contractor Magazine: "Home builder Lennar Corp. has sent letters to its subcontractors in Southern California, Nevada and other states, telling them to cut their prices by as much as 20% and resubmit invoices for work not yet paid for."

"The letters said the subcontractors have a choice of either cutting their invoice prices or being shut out of bidding on Lennar projects for the next six months. In some cases the work has already been completed."

"'Basically, they sent a letter out that said as the customers are paying us a lower price for our homes, we must pay you lower price for services,' said an Orange County plumber with more than 200 employees."

"'So they gave us a choice of either reducing all unpaid invoices under current contracts by a percentage that varies from contractor to contractor, but it's a range of 3% to 20%,' the contractor said. 'This is for work that we had already been lowest bidder on and it was ongoing like the fourth or fifth phases of the project. Lennar already demanded a 5% decrease from the previous phase, so this is the second time they’ve come to the well.'"

Labels: Construction Industry, Construction Trends

Industry News from ContractorMag.com: "Nonresidential building continues to outperform the residential segment, and construction industry job and wage figures reflect that trend, said Ken Simonson, chief economist for the Associated General Contractors."

"He said he was looking on the bright side when commenting on a Jan. 3 report from the U.S. Census Bureau that shows the value of construction put in place in November 2006 totaled $1.184 trillion at a seasonally adjusted annual rate, down 0.2% from the upwardly revised October total. "

"'I must point out there was lots of good news hidden in today's seemingly gloomy construction spending report,' Simonson said. 'Nonresidential spending showed a strong 1.2% gain in November, even after the October figure was revised from a small loss to a 1.1% gain. '"

"Meanwhile, residential construction spending shrank again in October by 1.6%, bringing the cumulative decline to 11% since peaking last March.'"

"Simonson said he has observed-'no letup in the torrid pace of private nonresidential spending growth.'"

"'For instance, lodging construction — mainly hotels and resorts — jumped 4% in November and was up 71% from the November 2005 level,' he said. 'Electric power construction charged ahead 4% in November and was 18% higher than a year ago. Manufacturing construction had a 1% gain for the month and was 11% ahead of the year-ago level. Health-care construction, mainly hospitals, gained 0.4% for the month and 20% compared to November 2005."

"'The diverse commercial sector, with strong gains in multi-retail and warehouse components, tacked on 1% in November and 11% compared to the year-ago month.'"

"'A closer look at the private residential totals shows new multifamily construction gained 1% in November and 16% compared to November 2005, while improvements rose 0.6% and 6.7%,' Simonson said. 'But those numbers were swamped by declines of 3.1% and 20% for new single-family construction."

"'Energy-and power-related construction, hotels, hospitals and rental housing will all perform well, while single-family and condo construction will sink the totals.'"

"Commenting on the January employment report from the U.S. Bureau of Labor Statistics, released later, Simonson noted that nonresidential construction jobs jumped during the month, while employment related to home building fell off. "

"'In January, construction accounted for one out of five net new jobs in the entire non-farm economy — 22,000 out of 111,000,' Simonson said. 'Not bad for an industry that constitutes less than 6% of total non-farm employment. Nonresidential construction employment growth has been sizzling."

"'Over the past 12 months, nonresidential building contractors and nonresidential specialty trades have boosted employment by 160,000, or 5%.'"

"Simonson said that the job growth should translate into additional nonresidential construction work in the next several months. In contrast, residential building and specialty trades employment slipped in January, bringing the year-over-year decline to 84,000 jobs, or 2.5% of the January 2006 total."

"'I expect home builders will continue to shrink for most of 2007, until they see a marked upturn in home sales,' Simonson said."

"'Part of this reflects a changing mix of construction jobs, away from lower-skilled home building and remodeling to skilled nonresidential crafts,' Simonson said. 'But it may also indicate that contractors are ratcheting up pay to find the workers they need.'"

Labels: Construction Industry, construction jobs, Construction News

From the Building Online website: "Spending on home improvements by homeowners is expected to increase at a 3.7 percent inflation-adjusted compound annual rate over the next decade according to a new report released by the Remodeling Futures Program of the Joint Center for Housing Studies. After strong growth earlier this decade where low financing costs and strong returns to house values encouraged upper-end remodeling projects, spending reached $280 billion in 2005. Recently, the remodeling industry has softened.

'The 2006 slowdown in the broader housing sector was reflected in the remodeling industry, with many homeowners putting their improvement activity on hold until the market stabilizes,' explains Nicolas P. Retsinas, director of the Joint Center. Retsinas adds, 'when the industry emerges from its current slowdown, investments in older homes that missed the last round of home improvements, the desire for energy efficiency retrofits, and growing pressure to upgrade the rental stock will ensure a healthy recovery.'"

Read more on the Building Online article, titled, "Healthy Gains in the Remodeling Sector Predicted for the Coming Decade"

Labels: Construction Industry, Construction News

Product and company news from Bloomberg: "Masco Corp., the maker of Behr paint and Delta faucets, posted its first loss in five years and is cutting about 8,000 jobs after a slump in the U.S. housing market. Masco also forecast 2007 profit lower than analysts anticipated."

"Masco will cut 16 percent of its workforce by the end of the first quarter, Chief Executive Officer Richard Manoogian said today on a conference call. Fewer purchases at Lowe's Cos. and Home Depot Inc. and the slowdown in new home construction, which accounts for 40 percent of Masco's sales, hurt revenue in the fourth quarter."

"Masco said profit this year could be less than $1.50 or more than $1.80 a share, depending on new home construction, commodity prices and sales at home-improvement stores. The U.S. housing market fell 13 percent last year, the biggest decline since 1991."

"Sales in the fourth quarter fell 5.8 percent to $2.95 billion, the first decline in at least nine years, because of the new home construction slowdown, which hurt revenue from cabinets and installation services the hardest. Cabinet sales dropped about 12 percent and installation services fell 9 percent."

"Masco will raise prices this year to make up for higher raw- material costs such as brass and copper"

Labels: Construction Industry, Construction News, Material Costs

Building material news from the Associated Press: "Due mostly to the slowdown in new home construction, lumber prices have sunk from a peak of about $1,000 per thousand foot board 18 months ago to around $200 per thousand foot board. In addition, prices for oriented strand boards, or OSB, are at a four-year low."


From Forbes.com: "Lumber and building materials supplier Louisiana-Pacific Corp. on Tuesday posted a fourth-quarter loss due to feeble demand from home builders in the sluggish U.S. housing market."

"'Fourth-quarter sales declined 40 percent compared to the same quarter a year ago, as levels of building activity dropped to the lowest levels we have seen this decade,' said CEO Rick Frost. 'Weakened demand negatively affected volume and pricing in all of our product lines.'"

"Frost cautioned that the first quarter this year 'looks and feels a lot like last quarter, with lower building activity and depressed prices for our commodity products continuing.'"


From Yahoo Finance: "Building Materials Holding Corporation, a leading provider of construction services and building materials to professional residential builders and contractors, today reported sales for the fourth quarter of 2006 decreased 26% from the same quarter a year ago."

"Robert E. Mellor, CEO, stated, 'Our fourth quarter results reflect the on-going correction of inventory levels which currently overhang the housing market. The rapid deterioration of our markets during the second half of the year has made for a very challenging quarter as homebuilders curtail production while excess inventory is absorbed.'"


Finally, from the Houston Chronicle.com: "Mueller Industries Inc., a maker of copper tubes and fitting used in plumbing and refrigeration, said Tuesday the slumping housing market and lower copper prices led to an inventory write down, sending fourth-quarter profits tumbling."

"The latest quarter included a charge of 26 cents per share to write down inventory that lost value as copper prices fell during the period. Mueller said the slumping housing sector also hurt sales volume."

Labels: Construction Industry, Construction News, Material Costs

A news story from the Baltimore Sun: "Black & Decker Corp. reported yesterday that the housing slump continued to cut into sales and earnings and said more restructuring could be on the way."

"Nolan D. Archibald, Black and Decker's CEO, told analysts during a conference call that the housing slowdown resulted in fewer orders from key retailers, which forced the company to scale back production to keep inventories in check."

"'As we had announced in December, we faced a very difficult market environment in the quarter, resulting in a significant decrease in sales and earnings,' he said."

And news on 3M from MarketWatch: "3M Co. said Tuesday that downturns in the housing and automotive markets chilled fourth-quarter earnings growth, and shares of the blue-chip conglomerate lost more than 5% as its outlook disappointed investors."

"'The dramatic slowdown in the U.S. housing and automotive markets had a significant negative impact on sales and gross margins in a handful of our divisions,' CFO Patrick Campbell said."

Labels: Construction Industry, Construction News

From The News & Observer: "Stock Building Supply, one of the nation's largest building-material suppliers, is cutting 1,500 jobs as the U.S housing slump depresses sales and profit."

"Raleigh-based Stock said in November that it was cutting 2,000 jobs. The latest round of layoffs was announced Monday by the company's British parent, Wolseley Plc, which also is closing 22 Stock branches and cutting 500 jobs at its Ferguson plumbing division, which is headquartered in Virginia."

"Officials blamed the company's worsening financial condition on builders starting fewer new houses and a decline in lumber prices."

"'We've responded swiftly to the challenging market conditions as a significant amount of our business is in residential construction,' Stock vice president of finance Jim Major said in a prepared statement."

"Analysts said the housing decline appears to be slowing, but nobody will know for certain if there will be a rebound until the traditionally strong spring selling season begins."

"'The jury is still out,' said Kevin Lapwood, an analyst at Seymour Pierce in London. New home sales in the U.S. appear 'to be leveling out, but there may be some more pain before there's gain,' he said."

"Declining construction during the five months that ended in December reduced demand for lumber and structural panels, which make up 45 percent of Stock's revenue, the company said. Lumber prices have fallen 22 percent, and panel prices are down 35 percent."

Labels: Construction Industry, Construction News

Construction job news from the LA Times: "Some of the decline in retail hiring reflected the housing slump. Hiring among dealers of building materials and supplies was down 2.5% in December compared with a year earlier. Construction remained the biggest drag on the economy, shedding 15,700 jobs in 2006, more than any other sector."

"The question now is when the housing market will hit bottom. Many economists are projecting that the slump in home sales will be over by the end of the year."

"'That may be wishful thinking, said Chris Thornberg, a former UCLA economist. 'I keep hearing that the real estate markets are going to turn around, and it never ceases to amaze me,' he said. 'These cycles take two years, top to bottom, when they pop. We're only a year into it. If anything, this is different because the bubble was so much larger.'"

And news from the Orange County Register. "In the 12 months through December, Orange County's construction industry added jobs at a 0.7 percent annual rate, much slower than the industry's 7.2 percent growth in 2005."

From San Diego's Union Tribune: "In San Diego County, construction firms shed 1,800 workers during December and real estate firms cut 500 positions, according to data released yesterday by the California Employment Development Department."

"During 2006, construction firms in the county lost a total of 5,000 jobs, more than 5 percent of their work force. Statewide, construction firms have axed 15,300 workers, a 1.7 percent loss. And economists say the losses will probably continue."

"'I expect further contraction on single-family home construction,' said Kenneth Simonson, chief economist for the Associated General Contractors of America. 'It's hard to say when that will end. It's really a question regarding how long potential home buyers think they can hold on. Right now, home prices are still dropping and buyers are waiting to see when there will be a bottom of the market.'"

Labels: Construction Industry, construction jobs, Construction News

News from Marketwatch: "Government statistics released this week showed a pickup in the construction of multifamily housing. But the data most likely was influenced by a warm December. And it's just as possible that January's cold snap in many parts of the country could create a reversal in the next set of numbers.

So says Mark Obrinsky, chief economist for the National Multi Housing Council. He expected to see December housing starts, released on Thursday, to be higher than usual. Starts of multifamily housing jumped 42%, according to the Commerce Department.

Truth is, the underlying story in multifamily housing is that markets around the country are starting to normalize, industry observers say.

The craze of condo construction is coming to an end. Renters aren't fleeing apartments to dive into homeownership as they had been in previous years. Rents are rising modestly, and are predicted this year to rise at, or a bit higher than, the rate of inflation.

In fact, many say that we're several years away from the real sea change in multifamily housing. When large numbers of echo boomers, children of the baby boomers, move out of the dorms and into their first apartments, more supply of rental units may be needed. Around the same time, their parents may be interested in downsizing from a house to a condo.

A demographic trend like that could create a genuine spike in building, one that lasts beyond a warm holiday season."

Bookmark the Contractor Update to keep up on the latest news, information, and trends in the Construction Industry.

Labels: Construction Industry, Construction News, Housing Starts

From the Miami Herald on the Construction Job outlook in Florida: "Construction jobs have taken the most direct hit. Job growth in the industry throughout the state has slowed from a peak of 12.8 percent in mid-2004 to 5 percent in November, according to the most recent state figures. Palm Beach County home builder DiVosta Building plans to lay off half of its 552 workers next month."

"Cement maker Titan America has seen a 20 percent drop in its concrete block business alone, which is almost solely for residential building. At full tilt last year its Pennsuco plant in Medley was running three shifts to keep up with demand. In the fourth quarter, it cut back to just one shift at the block plant."

"'Obviously, construction is in a pretty significant slowdown,' said Florida division president Hardy Johnson. The company has shifted its focus from providing for residential sector clients to commercial builders and for Department of Transportation work."

"'I think that '07 is going to be a flat year for us,' he said."

Labels: Construction Industry, construction jobs, Construction News

Homebuilder News from MarketWatch: "Despite contentions that the housing market is forming a bottom, 2007 will see 'a continuation of the challenging operating environment' for home builders, wrote Raymond James & Associates analyst Rick Murray in a report Wednesday."

"'Our fundamental outlook is one of caution, believing that the slowdown is likely to be longer in duration and more difficult than many are forecasting based on inventory levels that are stubbornly high and home prices that are broadly unaffordable,' he said."

"Many residential builders are also taking charges on real estate holdings that have fallen in value, and as they write off land options they've decided not to pursue. 'Since we think home-price declines will continue to pressure earnings, 2007 write-downs could equal 5% to 6% of equity written off in 2006,' wrote Deutsche Bank analyst Nishu Sood, estimating that impairments are likely only half-way done."

"There could also be an upcoming 'spike' in impairments for builders set to report financial results after wrapping up their fiscal years at the end of December, 'due to the added rigor of year-end accounting reviews and the desire to minimize next year's fiscal write-offs,' Sood added."

Labels: Construction Industry, Construction News

From the LA Times: "The current rate of construction should be accepted as a 'new mentality' for builders, who pushed up the pace of building to near-record levels from 2003 to 2005, Nevin said."

"'That type of massive increase bent the industry out of shape,' he said. 'It caused lot and land prices to wildly accelerate, material and labor costs to skyrocket and trade contractors to throw away their standard profit-measurement tools.'"

Labels: Construction Industry, Construction News

Labels: Construction Industry, Contractor Advice, Contractor Pricing, Small Business Advice

From Manufacturing.net: "A slowdown in home building is likely to end the record run enjoyed by lumber manufacturers over the past four years.

The Western Wood Products Association, which represents lumber manufacturers in 12 Western states and Alaska, said in its forecast that lumber demand fell in 2006 and is expected to slow further during 2007.

A decrease in housing construction is expected to reduce lumber demand in 2006 by 3.2 percent to 61.9 billion board feet, compared to the all-time high of 63.9 billion board feet recorded in 2005. The slide in demand will continue into 2007, with WWPA forecasting total lumber use at 57.1 billion board feet, a decrease of 7.2 percent.

The WWPA expects new housing starts will be down nearly 9 percent in 2006, and fall another 10 percent to 1.69 million in 2007. Residential construction is the largest market for lumber, accounting for more than 40 percent of the lumber used each year.

The association said the volume of lumber used in repair/remodeling is anticipated to decrease as well, though not as sharply. WWPA anticipates repair/remodeling use of lumber to fall 2.6 percent in 2006 and nearly 6 percent in 2007.

'While home prices will still fall in some areas, we think that housing starts and home sales are nearing a sustainable rate,' said Kevin Binam, the association's chief economist. 'But construction is going to be lower than we've seen in the past few years and that will mean less demand for lumber.'"

Labels: Construction Industry, Construction News