Todays News: Contractors Are Dropping Prices On Home Improvements

BKFranks

With the remodeling business in a downturn, consumers face fewer backlogs, lower bids.
Orange County Register, California

http://www.ocregister.com/articles/r...5-percent-work





Remodeling contractor Eddie Kesky had a backlog of customers three years ago, many of them paying to have their tract homes torn down and new McMansions erected in their place.

Today, however, "tear downs" are few and far between. Instead, the Los Alamitos builder keeps busy remodeling kitchens and bathrooms, adding rooms, giving homes a facelift. He's one of the lucky ones.

"From what I understand, talking to some of the other guys, some people are dead. Some people are still plugging away," Kesky said of his fellow contractors in the remodeling business. "Very few are busy."

A new report out this month predicts that things are going to slow down even more for U.S. remodeling contractors.

Harvard's Joint Center for Housing Studies forecasts that the level of home remodeling activity nationwide will continue dropping into the winter of 2009.

After peaking at $147.4 billion in the second quarter of 2007, homeowner improvements are projected to drop to $122 billion by the first quarter of 2009, a 17 percent decline.

The rate of decline will accelerate as well, the center forecast, with remodeling down 11 percent next winter over last.

"The slumping economy and struggling housing sector continues to drag down spending on home improvements," said Nicholas P. Retsinas, the joint housing studies center's director. "Households are reluctant to undertake major improvements in the context of falling prices."

In Orange County, the decline in home remodeling is even more severe.
After hitting a peak of $580 million in 2005, remodeling work here likely will total $355 million this year, a drop of $225 million, or 39 percent, according to the Construction Industry Research Board.

The tripling of Orange County real estate prices during the boom made it easy for homeowners to borrow against their increased home values and remodel old tract homes into custom palaces. They often equipped renovated homes with high-end electronics, spa-quality bathrooms, state-of-the-art kitchens and outdoor entertainment areas.

But after 33 months of falling home sales, a credit crunch and a 23-percent drop in home prices, owners aren't spending so freely anymore. Plus, it's no longer easy to get loans as home values tumble.

Anaheim-based Ganahl Lumber, which derives a large portion of its income from remodeling contractors, saw its sales numbers fall 7 percent in 2007, said President and CEO Peter Ganahl. This year so far, sales are off 15 percent from last year, he said.

In 2005 and 2006, remodeling contractors would be lined up outside the chain's stores at opening time.

"It was a madhouse," he said. "Now, it's not such a madhouse."

While a slowdown is bad for business, it can be great for customers. No longer are they paying top dollar to employ busy contractors and their overworked crews. And with less work, there are no backlogs, so they can start work when they're ready and are less likely to face delays.

Kesky, the Los Alamitos contractor, and Fullerton contractor David Neilson confirmed that competition among contractors for scarcer jobs has worked to the customers' benefit. Both have dropped their prices at times to ensure they got a job.

"We're working harder for less money," Kesky said. "I tightened up my percentages. But my costs haven't gone down. … We're working for less profit."

Kesky said he's had two clients cancel jobs because their financing fell through.

Meanwhile, Neilson said he's having an easier time finding subcontractors.
"The subs have told me that the other general contractors they work for have become more slow or (have) no work," Neilson said. "They're very appreciative and cooperative and willing to lower their prices here and there for the work that we're giving them."

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mdshunk

I bet they're saying, "I'm not making much profit, but man, am I ever busy!"

GregS

I don't understand why you would lower your price because you are not busy. Wouldn't you want to raise your price in order to bank more money to help fill in the gaps?

bert0168

Sure but I think it comes down to two things:

1. "Supply and Demand" , too many contractors (or guys who think they are) and not enough money/work to be had.
2. Peoples nature to think about price first and quality and end result second.

I agree that you would want to bank away more $ in times like these, but with most contractors dropping prices, it's hard to compete. A lot of guys would rather drop prices to keep something coming in rather than wait around for a higher price job, if it comes at all.

Those kind of things (like free estimates too) only work well if everyone does it.

Carport King

I just cannot stand for someone to put this doom and gloom crap on this post. But wait let me explain?

I have talked to contractors all over the country and what I have found is the contractors that have been in business for 15 years or more are all crying the blues,not all but most.

Contractors that have been in business for 7 years or less are busy, again not all but most.

Why is this?

Simple! Contractors that have been around for a long time have been able to build a strong business without much marketing or none and we live in a total different culture now. They did what I call relationship marketing with builders,suppliers,associations,BBB, and the good oh buddy system.

You would be surprised how many of them have know clue on how to market there company. They have never done it.

Now look at contractors who have just started up in the last 7 years or so. They understood that right from the beginning they had to market there company to stay busy. And because of the internet clients are doing there homework and educating themselves.

Plus look at all the TV shows out there promoting do it yourself. Look at all the big box stores that thrive on do it yourself. Yes it is harder to get clients and then sell them on your products.

What does this mean to all of you? WAKE UP if you listen to the article above then hey close your doors now and find a job!

Everyone that has passion for there business will market there company and will thrive and keep a positive attitude and learn how to survive in this type of market.

So please do not give me the poor me doom and gloom sob story about how bad business is. Turn the key on the door and this will give all of us that will fight and we will be glad to take more market share from you.

My hat is off to all the hard working men and woman that continue to show up everyday and turn the key to there business and walk in and make there clients and there employees there priority.

mickeyco

As more and more illegal aliens enter the contracting world the overall average is going down, so is the quality of the work.

.

__________________
Some people climb mountains. I take out the trash. But we both do it for the same reason.

Mike Finley

Both of you are right.

Berts right in that - Markets don't exist within a vacuum.
Carport Kings right - in that the strong will survive.

However, there is only one person who is number 1. There are many people who make up everyone else who is not number 1.

#1 only employees so many people, #1 only buys so much material and keeps so many other people working at the suppliers, #1 only purchases so much repair work for his trucks, #1 is only going to buy so much advertising...

#1 only effects the rest of the economy around him so much.