Swing in the market is hardest on area construction workers

BY ELIZABETH BASSETT
October 15, 2007

This summer, it seemed that all news about the housing market was negative.

Now, the downturn from the sub prime lending crisis is affecting other industries as well. Despite the sometimes worrying numbers, experts say that most industries affiliated with the housing industry will correct themselves soon.

For the past several years, lending companies were offering nontraditional financing to people who wanted to buy homes. By loaning money to people with sometimes doubtful credit history, finance companies put themselves into a sticky situation and lenders couldn’t make mortgage payments as they went up.

Over the summer, the U.S. Labor Department reported that an estimated 4,000 jobs were lost from July to August, most of them coming from industries connected to the housing market, like manufacturing and construction. The decline was the first monthly decline reported in four years.

At the beginning of October, however, the Labor Department report was revised upward with a gain of 89,000 jobs.

In more than 29 counties in North Texas, about 6,000 existing homes were sold in September compared with more than 7,400 during the same month in 2006, according to a report from the Texas A&M University’s Real Estate Center and the North Texas Real Estate Information System.

Walter Molony, senior public affairs associate for the National Association of Realtors, said that while the business climate is bad for some, others are benefiting. For example, it is the fifth highest year on record for existing-home sales, although down to about 5.78 million homes sold from last year’s 6.48 million.

“People know it’s cyclical,” Molony said of the real estate business.

Sales of houses will self correct, Molony said, but correction is harder for the building industry because it is not as far removed from the manufacturing of homes.

“Builders can’t adjust as quickly to changes in the market,” he said. “It’s like steering a huge ship – you can’t change direction very quickly.”

A hold on building

Ted Wilson, a partner with Residential Strategies, based in Dallas, said that the number of homes being built this year is expected to be around 30,000, as opposed to a high of more than 50,000 in 2006.

“For the Dallas/Fort Worth market, the builders had really been aggressive with the starts and closings,” he said.

As the subprime bubble burst, lending institutions tightened restrictions on loans, including those to builders, Wilson said. As a result, builders have to sell their already built homes or spec homes before they get the financing to build more, he said.

“Obviously, when you look throughout the market, contractors, subcontractors – they’re all feeling the pinch as well,” Wilson said.

Billy McCarty, who owns Jewel Custom Homes Inc. in Fort Worth, said that usually he designs and sells 10 to 12 custom homes per year. This year, he said, he has yet to sell one.

“Around the first of the year, everything just started shutting down,” he said.

Financing is a problem, McCarty said: Like some potential home buyers, builders are finding it more difficult to borrow money. With two spec homes on the ground, McCarty said he has to sell one before he can get the financing to start another.

“As I talk to my subcontractors that I’ve had for years, they’re telling me that the other builders they talk to, it’s about the same,” he said.

McCarty said one blessing is that he takes care of all the planning for Jewel Custom Homes, so he didn’t have to lay off any employees, unlike some larger builders. D.R. Horton, for example, the nation’s largest homebuilder, laid off 3,300 employees this year.

Steve Staley, who owns A+ Staley Moving in Burleson, said that his moving company has been affected by the cautious attitudes the housing market has prompted.

“It was slower this summer than usual,” he said. “We could tell a

difference.”

Summer is usually the busiest time for helping people move to a new home, he said.

“Any time homebuying is down, the moving companies go down,” Staley said.

Advantages for buyers

Despite the downturns, there are some advantages to be found from the subprime bust.

McCarty said that because builders have to sell their spec homes in order to build again, homebuyers can find newly-built new homes at deeply discounted prices.

Additionally, since many homeowners are finding they are having a tough time making mortgage payments or facing foreclosure, pre-owned homes are also being sold at bargain prices, McCarty said.

Wilson said that many people may be afraid of entering the housing market at all because they don’t understand that there are bargains to be found.

“As soon as the deals are gone, they’re gone,” he said.

The National Association of Realtors has seen an uptick in membership this year as about 12,000 people join to take advantage of benefits like ways to continue education and diversify their business, Molony said.

By next spring, the housing market and other industries will be well on the way toward self-correction, Molony said.

Even with stabilization, Wilson said, the construction industry is going to be changed by 2007 and the market’s downturn.

“The reality is it's not going to back up to levels we saw before,” Wilson said.