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

Many of the members in our network have been reporting a big drop in local remodeling, repair and building jobs in their area. At Construction Deal.com, we receive and review many economic reports on the industry and we want to provide you with an updated outlook for the rest of 2007.

The Good News
Overall, the economy is moving along nicely. The job market is steady. Interest rates are holding. The stock market continues to expand. Excluding energy prices, inflation is not currently a problem. And the Federal Reserve appears to have no intention of raising interest rates any time soon.

Many of our contractors are saying that people are starting to plan new building and remodeling projects again. Fears of a bursting housing bubble and lower housing prices kept many in the dark but they are coming out to test the waters again.

The Bad News
Recent reports show jobless claims rising. Salary growth is stagnant. Job growth fell to its lowest level in 2 years. Consumer spending is finally starting to cool. Most of the job losses have come from construction jobs and retail. And oil prices are still very high.

What Does It Mean?

• Consumer confidence and the nation's housing market could cause problems. Homeowners and business owners may not be willing to take on expensive remodeling or repair projects if they fear a dip in the economy.
• Housing prices have not crashed but potential buyers want and will soon demand that prices come down.
  
• If home prices drop, people will have less equity. Less equity means less money to spend on improvement projects. They can't borrow against equity that has dried up. They may be worried it will cause a chain reaction bringing down the rest of the economy.
• If mortgage and borrowing rates do not drop, fewer people will be buying new homes and may hesitate to remodel current homes. Many economists are reporting that our new Fed chairman is making a mistake by not cutting interest rates. A minority are saying that his inaction on rate cuts may send up into a recession later this year.
  
• One thing that will not help the housing market: the disappearance of sub prime loans. These days, mortgage companies also fear 100% financing on house purchases. With fewer people able to buy a house, the supply of houses will continue to stay high.
  
• Foreclosure rates are skyrocketing. Some cities and counties have foreclosure rates that are up 3o% to 50% over previous years. Foreclosures increase the amount of available housing and the reports of these foreclosures keep consumer confidence bogged down.
  

For 2007, it could be a slow year for all sectors of the construction industry. It might mean waiting for confidence to return, which will happen if housing prices only drop a small amount throughout the country. We'll try to keep you updated as new reports come in.

If you are a member of the Construction Deal.com network, we'll continue to bring you as many jobs as we can to help grow your business. We have added 40 new residential categories and over 80 commercial construction, remodeling, and repair categories. Advertising and marketing has begun in earnest on our new commercial categories so you should see an increase in available jobs.

If you're not a member yet - consider registering for free. You can review local commercial and residential job leads in your area. If you see a good history of past and present opportunities, feel free to become a member! If not, continue to monitor your account with us for as long as you would like until more new jobs come up in your area. Give us a call if you have any questions at 866-663-4711!

Labels: Construction News, Construction Trends

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

It's important to know who your future clients will be so that you can meet their needs. And the demographic of homeowners is rapidly changing in the U.S. Technology is going through major changes which means contractors and service professionals will need to keep up.

The Baby Boom generation is aging and moving into retirement years. It doesn't mean they won't want home repair or improvement, but their needs will be changing. The market will still be large but they may want to downsize, to add assisted living capabilities, and to add the latest technologies to make life easier.

The Gen Y population is more technological and many are very interested in green products, energy conservation, and healthy living. They're using the Internet to find professionals and are doing a lot of research online before calling for help. While they might be called more selfish, they are interested in the latest products, technology, and materials that require little maintenance and rare replacement to free up their time. And they don't want to spend very much for it.

Finally, it might not be a bad idea to start lessons in Spanish. According to the Washington Post, "Hispanics accounted for about half the growth in the U.S. population since 2000... the nation's largest minority group is increasing its presence even faster than in the previous decade."

The report also stated, "...Half are under age 27. By comparison, half of non-Hispanic whites are over 40." It will be very important to know how to market and sell to the Hispanic market. They are a major percentage of homeowners and will be looking for your services in the coming decade.

To keep up on the latest trends, bookmark this Contractor Update site and we'll continue to bring you news and information from around the country and from your neighborhood. If you need additional job leads, register - for free - with Construction Deal and we'll show you all the available jobs near you. If you're interested in any of them, you're more than welcome to subscribe to our service!

Labels: Construction Trends, Remodeling Trends, Small Business Advice