Central Califortnia Residential Housing Woes, Commercial just doesn't get it

Tulare County businesses tied closely to home construction, from heavy-equipment suppliers to air-conditioner installers, are feeling the ripple effects of the housing slowdown.


Some are feeling it worse than others.
Jerry Kramlich, general manager of High Sierra Lumber and Truss in Tulare, said the truss-manufacturing business has taken a hit this year. Business has dropped 50 percent despite summer normally being a busy period, he said.

Trusses are used to hold up roofs.

"January and February were terribly slow," he said. "March and April were not too bad, but May, June and July [were] bad."

As a result, he has had let go of six of the 24 people in his truss operation. He's not optimistic that he'll have reason to rehire them any time soon.

"My feeling is it's going to be pretty slow this year," Kramlich said.

In fact, he expects the downturn in construction to get even worse.

A drop in new building permits seems to bear out that prediction. The value of single-family-home permits issued last month fell 35 percent compared to July 2006, Visalia's Community Development Department reported Thursday.

The decline signals an end to a five- or six-year building boom.

"From the numbers we are seeing today, we know that new home projects coming onto the market in Visalia peaked in 2005-06," said Pam Sing, a senior administrative analyst for the city. In recent months, builders Centex Homes and Ennis Homes; the area's biggest engineering/ architectural firm, Quad Knopf; and big-box building materials suppliers Home Depot and Lowe's have laid off workers in response to sagging home construction and sales.

Through the end of July, total 2007 building-permit valuation was $231.2 million — a 29 percent decline compared to the first seven months of 2006.

The value of new single-family home permits declined more than $75 million — or 38 percent — over the same period.

On the other hand, the pullback in new home building may translate into good news for area homeowners — especially those hoping to sell in a market bloated by a near-record number of properties for sale.

Fewer new homes OK'd for construction in the second half of 2007 may gradually reduce the inventory of homes for sale in the city, reducing the competition.

The news is far less rosy for businesses tied to new home construction, even those that don't work on the large, multi home developments.

Mike Martino, an estimator for Visalia Tile, said his company stopped doing work on large home developments a couple of years ago.

Before this year, he said, about 20 percent of Visalia Tile's business involved new homes, mostly for contractors building a handful of homes a year.

But with so many new tract homes on the market, Martino said, small builders who used to build 10 or so homes a year now are building four or five.

"When they slow down," he said, "we slow down."

But the loss hasn't hurt Visalia Tile too much, Martino said.

His company has gone after home-remodeling jobs that it didn't always pursue.

Also helping his business: the health of commercial construction.

Commercial permits up
City officials say the downturn in residential permits that began earlier this year is being offset by robust activity in the commercial sector, which got a boost in July when the city issued a permit for a new Costco at Packwood Creek. That permit accounted for more than $12 million of the $22 million in total commercial permit valuation for the month.

By comparison, in July 2006, the city issued $9 million worth of commercial permits.

Another shot in the arm for the commercial sector came in May, when the city issued a $6.5 million permit to build a new Lowe's Home Improvement store at Demaree Street and Riggin Avenue in north Visalia.

"Commercial activity remains healthy," Sing said.

Mark Davidson, manager of Consolidated Electrical Distributors, a Visalia wholesaler of electrical supplies, said he mostly supplies commercial construction projects and builders working on individual, high-end homes. Customers in both areas have not been affected much by the real estate tide, he said.

"Commercial contractors still are going strong," he said.

Last year was a record-setting year in building activity for many commercial builders.

And while there appears to be a slight decline this year compared to last, Davidson said, at least a couple of his clients look poised to set records again this year.

"This part of the San Joaquin Valley is still growing," he said.

Besides co-owning the lumber and truss business in Tulare, Kramlich co-owns High Sierra Lumber in Woodlake.

Business there is "pretty steady," he said. "A lot of people are building their own custom homes, and they can afford to build," he said. "And lumber prices are at historically low prices right now because of the slow demand."

Kramlich said he expects new home construction to slow further this year, but some industry analysts are predicting that things will pick up next year.

"The market is going to adjust," said Bob Keenan, president and chief executive officer of the Home Builders Association of Tulare-Kings Counties.

"The fewer of anything, the more expensive it becomes. Today you are seeing the opposite of that."

As for would-be home buyers, now is their time, Keenan said.

"Interest rates are low," he said, "and everybody is willing to sell."

From Visalia Delta Times 8/4/07