A TRIBUNE SPECIAL REPORT

Housing pain ripples through economy

Homeowners aren’t the only ones getting slammed by the mortgage crisis. It’s hitting furnishing stores, building suppliers and trade workers—roofers, landscapers, electricians and others — whose livelihoods depend on a healthy hous

By Julie Lynem

A s the branch manager of Big Creek Lumber Co. in Paso Robles for more than 20 years, Ken Wall is no stranger to the booms and busts in the housing market. He’s seen the business cycle rise and then falter, only to pick up again at a brisk pace.

“Business has declined somewhat from 2006 to 2007, and it’s continuing to not be as busy, obviously with home building down,” he said. “We’re focusing on customer service, and we’re trying to maintain the kind of products that appeal to a wide variety of customers.”

In San Luis Obispo County, new-home construction is in the midst of a significant downturn. With credit tightening, making it more difficult for even qualified people to get loans, some individuals and developers are putting their projects on hold, or like Texas-based Centex Homes, have pulled out of the area.

The result has been a decline in business for many whose survival depends on a robust housing market—the building suppliers, skilled workers and retailers who make a project happen. Add to that the rising cost of fuel, sinking home values and sluggish sales, and an overall uneasiness about the economy, and that creates an even tougher environment in

which to thrive.

“The residential construction market: It’s dead,’’ said Leslie Halls, executive director of the San Luis Obispo County Builders Exchange. “We’ve seen a lot of contractors lay people off. It has a ripple effect through the marketplace. They’re not buying anything but the bare necessities.”

Last year, fewer residential building permits — nearly 1,000—were issued throughout the county than in any year since 1995, according to the Homebuilders Association of the Central Coast. This year may prove to be slow as well, said Jerry Bunin, a spokesman for the association.

A total of 182 residential building permits (single and multifamily housing) were issued in the first three months of 2008, down from 277 in the same period a year ago, a 34 percent decline.

“When prices are falling, there’s just not a lot of ability for new construction to proceed,” Bunin said. “Lenders are not providing money for new projects. There’s nothing that tells us that changes are coming tomorrow.”

Bunin added: “We’re hoping for a turnaround in late 2009.”

Riding it out

For those who have been touched by this latest economic slowdown, a comeback can’t come soon enough.

“It’s terrible out there right now,’’ said George Silva, owner of Central Drywall Inc., which has operated as a family-owned business in Grover Beach for 16 years. “Two years ago we were doing 300 houses a month. Now, it’s roughly 20 to 30 houses a month.”

To reduce costs, Silva had to trim employees. He had about 60 last year; now Silva has about 25.

“I’ve been doing this for 37 years, and this is my third one (slowdown) around,’’ said Silva, who has been taking on more jobs in places such as Bakersfield and Carpinteria to make up for the lack of work closer to home. “For me, I won’t see anything move until sometime next year in August or September. Then, I would be real happy.”

Ryan McLean, whose family owns McLean Roofing Inc. in Arroyo Grande, said this seems like the worst year the company has had since it started in 1998.

“The phones are not ringing nearly as much,’’ he said. “And the jobs we do get called out on, everyone and their mother is bidding the job, which is making it difficult to get jobs. We just don’t have a whole lot of options. We’re trying to advertise as much as possible and leave fliers on doors. I would say business has probably been cut in half.”

McLean Roofing has not cut any employees yet, but if business does not improve, it may have to take that step, he said.

“We’re going to try to ride it out as best we can and hope we don’t have to lay off any workers,’’ he said.

Cortland Zoff, chief executive officer of Cortland Landscape, also in Arroyo Grande, said ongoing maintenance work and retirees who have the means to undertake elaborate projects like sunken gardens are helping to keep his business going. In the past few years, landscape jobs have declined at least 25 percent.

“There are still people out there with money, but the typical person here is not having a good time financially,’’ said Zoff, adding that rising fuel costs have exacerbated the problem. “Too many people were buying homes as short-term investments, thinking they would never go down. Many people got hurt on loans, and they’re not willing to spend a lot of money on outdoor landscaping or hardscaping.”

Zoff noted, however, that spring is a time for renewal.

“It could take five years to recover or it could be one or two years,’’ said Zoff, who recently landed three jobs. “It’s been hit or miss. Sometimes on Sunday night, I don’t know what I will do with the crews on Monday.’’

Uncertain times

The tremendous amount of uncertainty created by the recent crisis is in many ways made worse because no one knows how far or deep the pain will be, some economists say.

In the early 1990s, the county experienced a recession partly because of what happened elsewhere in the state,

Businesses struggle through slide

such as defense cuts in Southern California that resulted in people losing their jobs and houses. In the late 1990s, the dot-com bust caused job losses and a significant downturn in the Northern California housing market.

This time, the problem is different because it began with a “fundamental problem in the market’’ that will take some time to resolve, said Kirk Lesh, real estate economist with the UCSB Economic Forecast Project.

“You need the secondary markets to start lending money again, banks more willing to lend money,’’ he said. “And sales and prices have declined. These things just don’t turn around on a dime.’’

Economic growth slowed substantially last year but is expected to improve slightly this year, according to the most recent UCSB Economic Forecast for San Luis Obispo County. That growth largely will come from increases in tourism, the wine industry and a few new projects, mostly in the North County.

The county, which is tied heavily to government and service industries, is expected to see additional jobs in retail trade and leisure. Construction jobs fell last year and are expected to fall again in 2008, according to the forecast. In fact, mining and construction jobs, which make up about 7.2 percent of employment in the county, fell 3.9 percent in 2007, while retail jobs fell 0.8 percent.

Cities feel the fallout

The dif ficulty many businesses have had is affecting some cities as well.

Although San Luis Obispo has seen an increase year-to-date in the number of building permits, Claire Clark, city economic development manager, said sectors related to housing such as building materials and furnishings have declined and will continue to do so.

“The forecast is that they will continue to slip more in the coming months,’’ she said.

In the fourth quarter of 2007, sales tax revenue in San Luis Obispo in the building and construction group dropped 20 percent, compared with the same period the previous year. The general consumer goods category was down by 1.2 percent in the fourth quarter compared with the period in 2006. Home furnishings were down around 10 percent, statewide and locally, Clark said. In recent years, several furniture stores, including Porch Home & Garden and Black Sea Gallery, have closed in the downtown area.

Creative approaches

While many business owners and skilled workers are hurting, others are thinking creatively and making the most of a difficult time —whether it’s investing in new equipment, training employees, being more competitive with pricing or watching expenses. Some are expanding their scope of work, switching more to commercial jobs to fill in the gaps.

Local commercial real estate experts say the market appears to be holding its own and has fared better than residential.

Cabinet Company Manufacturing in San Luis Obispo spent more than $100,000 on a high-tech machine that cuts wood to create custom cabinetry, saving on labor costs, material and time. The company used to schedule one kitchen job each week. Now, a job can be completed in a few days.

The company also has been advertising, bidding more commercial jobs and relying on its strong base of referral business, said Newt Price, part-owner of the firm.

“We decided to be competitive,’’ Price said. “We decided to be faster at what we did and to increase our output. Even in a bad market, we wanted to do more stuff. Commercial is high volume, so that was right up our alley.’’

San Luis Obispo firm Thoma Electric has seen declines in both the construction and design aspects of its business, with construction off by about 25 percent, said Bill Thoma, owner and president.

The company is taking this opportunity to do employee training that it had put off, he said.

“Although we’re spending the money, we’re investing now,’’ Thoma said. “We’re taking the leap of faith that it will pay back in the future, so that when we do come out of the slowdown, we’re current on our software and knowledge-based training.’’

Thoma, whose firm depends primarily on commercial, industrial and government work, doesn’t expect business to pick up for another year and a half. Until then, he’s watching his budget closely, “hunkering down’’ and not buying big-ticket items such as new trucks.

“My dad taught me … don’t spend all the money you make. Save for a rainy day,’’ he said.

Other businesses, including Idler’s Appliances, are meeting the challenges of this economy by using simple cost-cutting measures. Keith Rodgers, vice president, said Idler’s looked at costs it could trim without affecting customer service. For instance, garbage pickup is now twice weekly instead of daily.

Idler’s recently closed its stores on Sundays, a decision that saves on utilities and labor. Rodgers said it was an idea that had been in the works because the company believes Sunday should be a time for employees to spend with family. About a year ago, Idler’s also made a decision not to replace employees who had left.

“(The economic slowdown) causes you to re-examine what you’re doing,’’ Rodgers said.

Finding a niche

Not all local business owners are being hit hard by the housing market correction.

Mike Miner, owner of five Miner’s Ace Hardware stores in the county, said sales for the first quarter have been strong.

“It’s been the best quarter by far that we’ve had,’’ he said.

Miner added: “Cer tainly, one of the ironies of a downturn like this is that in our type of business, when the economy turns down, we tend to do well. Instead of going on vacation or making a major purchase, people spend money on homes or make home repairs themselves. They say, ‘Since I won’t be traveling to Europe this summer, I’ll do something around the house. I’ll put in a new garden or remodel a bedroom, whatever it might be.’ ”

Joanna Wemple, who operates All County Window & Door with her husband, Shayne, described business as flat. The San Luis Obispo firm, which relies on residential jobs, ended 2007 with some of its strongest sales, she said.

“You hear all the statistics that people aren’t building, but that doesn’t mean they’re not remodeling,’’ she said. “They know they’re not going to buy a new house, but they can upgrade their own house.”

The company has sought multiple streams of income such as glass replacement and is emphasizing its customer service, which Wemple says sets them apart from national chain stores.

“We will start to increase as the summer months continue,’’ she said. “With the election coming, we know something is going to change. There’s a feeling of renewal. We’re feeling really good.’’

For Wall of Big Creek Lumber, there’s nowhere to go but up. He, too, is seeing more customers remodeling and is hopeful that business will steadily increase. Big Creek picked up some customers earlier this year after Hayward Lumber’s Paso Robles store closed because of the slowdown in the housing market.

“This is a good area to live in,’’ Wall said. “There’s no reason why people would stop coming here and building homes.’’

Has the slowdown in the housing market impacted you or your business?