Mortgage crisis halts construction

Ron DaParma and Sam Spatter

Suppliers to the nation's home construction and remodeling industries are suffering as a result of the mortgage and credit crisis.

Housing starts in the U.S. declined 24.8 percent in 2007, including a 28.7 percent drop in single-family starts, according to the government figures reported by the National Association of Realtors.

In the Pittsburgh region, starts declined by 15.3 percent in 2007, according to Tall Timber Group, a Ross-based construction market research and tracking firm.

Fewer housing units mean fewer orders at home construction suppliers, improvement stores, brick, drywall and concrete suppliers, among others. Shipments of construction materials and supplies from U.S. manufacturers declined 2.5 percent to $518 million last year from $532 billion in 2006, according to the Census Bureau.

"Everyone has been down, including the manufacturers and suppliers," said Andy Carlo, senior editor of ProSales magazine, a trade publication covering the lumber and building materials industry. "People had said it may be turning around late last year, but now they're saying there might not be a turnaround until 2009."

The Census Bureau reported that residential construction spending fell 18.6 percent from February 2007 to February 2008, said Ken Simonson, chief economist of Associated General Contractors of America, in a recent newsletter.

Bureau of Labor Statistics figures showed jobs in residential building and specialty trades fell a combined 285,500, or 8.7 percent, nationally in the most recent 12-month period.

An example of companies affected is 84 Lumber Co. in Washington County, which closed stores and cut jobs in the wake of plummeting sales.

Sales at the privately held company that supplies building materials and services to professional contractors at stores in 37 states fell to $3.1 billion in 2007 from $3.9 billion in both 2006 and 2005, a 21 percent decline.

Its performance has held up in Western Pennsylvania because of the relative stability of the housing market here, but overall, its operations are taking a larger hit. "So far this year vs. 2007, we're up a few points in Western Pennsylvania," said Mitch Wagner, 84 Lumber's director of purchasing.

Before the housing crisis hit, the company had more than 475 locations, including 24 component plants. Today, it has 386 stores and 13 manufacturing plants. The cuts in the past year included about 80 employees at its headquarters in Eighty Four, Washington County, leaving employment at about 600. Some stores and plants have been "mothballed" and will reopen when conditions allow, said spokesman Jeff Nobers.

Hard hit were stores in Las Vegas, Phoenix, several areas in California, Florida, and Texas, where real estate sales and new home construction have plummeted since a boom between 2002 and 2006, Wagner said.

Home Depot Inc., the nation's largest home-improvement retailer, has cut employment. It forecasted a decline in profits this year as the slumping housing market and consumer confidence curb consumer spending.

The retailer employs about 331,000 overall, two-thirds of them full time, and cut 500 headquarters jobs in January. Earlier this month, it said it may cut as many as 1,000 jobs. In the Pittsburgh area, Home Depot doesn't plan to close any of its 15 stores in six counties, said Jen King, a spokeswoman. The company has more than 2,000 retail stores nationwide.

"Nationwide, demand for wallboard (drywall) is down 30 percent," said Nancy Spurlock, spokeswoman for National Gypsum Co. in Charlotte, N.C. "In response, we've cut back, chiefly by dialing down production at some plants.

"The housing market now is going through a correction; there are about 800,000 new units still on the market, and until that's worked down, things aren't going to get much better," Spurlock said.

National Gypsum has a 400,000-square-foot wallboard plant in Shippingport, Beaver County, that opened in 1999 to serve what at the time was a booming national home construction market. Today, the plant still is operating with three shifts, but production now averages five days a week. It has about 81 employees, she said. That's about 25 fewer employes than when it opened.

The brick business nationally was down about 50 percent during the first three months of 2008, said Alan Milliken, owner of Milliken Brickyard in Baldwin. His company distributes bricks in Allegheny and surrounding counties in Western Pennsylvania.

Wes Fravel, plant manager for Redland Brick Inc. in Harmar, said business there was down about 75 percent in the first quarter.

Neither company had to lay off any workers, although Redland did not replace several workers who retired, Fravel said.

One advantage Redland Brick has is that it produces architectural brick in addition to residential brick, and the architectural brick production and demand remained steady, he said.

The housing crisis has forced the furniture industry to pull back, said Paul Sanford, chief operating officer for Pittsburgh-based retailer Roomful Express.

"In the past, home buyers would receive a mortgage that included extra funds to purchase furniture. But today, mortgages do not include these funds and people have less dollars to spend on furniture," he said.

Sanford said the average amount of each sale at his company's stores has declined as has customer traffic. To counter that, "we have been more aggressive in our promotions and changed our ads to reflect that change," he said.

Sales were flat last year -- down perhaps 1 percent, after being down 5 to 8 percent several years before that, Sanford said.

"We expect 2008 to be slow because of the housing market, high gasoline prices and this being an election year, with people being hesitant to spend," he said.

"Nearly everyone in the home furnishings industry has been affected by the slump," said Robert Levin, owner of Levin Furniture. The company has tried its best to retain jobs, he said, and so far, employment has been steady at about 740.

Levin said he has been trying to find ways to become more efficient and reduce expenses. Examples include negotiating better pricing based on the company's volume, working to improve truck routing, to recycle cardboard, plastic and paper and convert to more cost efficient lighting.

"We are trying to keep prices low and make it up in increased volume," Levin said.

Jim Rowe, owner of Fastrac Inc. of Murrysville, is looking for three or four more employees for his concrete business,.

"I saw the housing slowdown coming several years ago and reduced my work force at that time. But now, business has picked up with home-builders preferring poured concrete foundations instead of using concrete blocks, and that has kept my work force of 15 busy, but I need additional workers," he said.

Rowe said he knows of at least one local concrete supplier and a separate site operated by an Ohio company that closed because of to the slowdown in business, but he declined to identify either.