If not new, at least renewed: New construction down, but remodeling up

Harbert at computer
Gordon Harbert, president of Harbert Lumber and Western Building Solutions in Grand Junction, carefully tracks national and local construction trends. Harbert says those trends reflect a preference for remodeling over buying a new home. And most remodeling projects are smaller than they were a few years ago. (Business Times photo by Mike Moran)

These are trying times in the construction industry. Just as people encounter difficulty in selling their homes, so do people who make a living building new homes. With a glut of homes on the Mesa County market with listing prices below levels of three years ago, there’s little incentive to build.

“I’m involved in 83 percent of the new homes,” says Gordon Harbert, president of wholesale supplier Harbert Lumber and Western Building Solutions in Grand Junction. “That means I have five of the six homes under construction.”

Mark Ledebur, owner of Carpetime in Grand Junction, assesses the pace of residential construction in much the same way. “There’s not much new construction. Everything has backed off.”

Ledebur says customers considering new carpet or other flooring want to replace existing flooring, not install new flooring in a home.

The scenario is typical across the nation. Unemployment for construction work hit 20.7 percent in December, up from 18.8 percent in November. That’s a far cry from the national rate of 10.6 percent in 2008.

Harbert keeps abreast of national and local construction trends and expects 2011 to be about as active as 2010, which isn’t saying much. The number of building permits issued in Mesa County last year was about 10 percent lower than in 2009. And the 2009 total was lower than in 2008. Harbert anticipates this year’s number to remain about the same as last year — at best.

“The reason is the amount of foreclosures and inventory on the market,” Harbert says.

According to the Colorado Division of Housing, there were 1,672 foreclosure filings in Mesa County last year, about 400 more than in 2009. There were 980 completed foreclosure sales.

Such inventory has helped drop median home prices in the Grand Valley from $225,000 to $191,000 since 2009, reflecting a national trend in the wake of the home mortgage crisis. While the buyer of a new home might have faced costs of $130 to $160 a square foot in 2008, the prices are now typically in the $90 range, Harbert says.

The scenario has many homeowners following the trend that’s been prevalent for about two years — remodel in piecemeal fashion, hoping to improve the value of the home while acknowledging the reality they’ll be living there longer than they’d planned.

“Traffic for specialty departments is steady,” Harbert says. People are considering new countertops and other amenities. But they’re less likely to consider remodeling an entire room than they were a year ago. And instead of spending for high-end cabinets, he sees customers opting for less expensive cabinets and adding trim. They’re also looking for bargains. “It’s like going to the store and buying generic instead of the name brand,” he says.

Such price-conscious buyers are more likely to purchase “new jewelry,” such as knobs for drawers, to help spruce up a room in lieu of investing in a major overhaul.

Says Ledebur: “You see one or two rooms instead of the whole house.”

Ledebur says he would be happy if this year’s revenue is the same as it was in 2010. While he experienced a big drop in the bottom line in 2009, profits in 2010 were comparable to the prior year, he says.

People considering a move up face some obstacles that weren’t around in 2008. The unemployment rate in Mesa County has more than doubled in three years, the natural gas industry employs fewer people and banks are more hesitant to loan money. People who qualified for mortgages with no down payment in previous years now face the prospect of providing a down payment and showing more substantial proof of income and a good credit rating. Interest rates have risen in the past three years.

Families earning in the range of $40,000 a year can still qualify for home loans, but usually only for houses priced under $200,000, Harbert says. Even with a glut of homes in that price range, many potential buyers believe prices will fall even more this year, so some will wait until they think prices have bottomed out.

On the other hand, people who’ve got good credit and a substantial down payment can grab a home for a bargain —for use as a personal residence or an investment. “Homes are affordable for people who can get them,” Harbert says.

Investors can use such homes for rentals. With the rental vacancy rate declining in Mesa County, Harbert wonders when apartment buildings will start to go up again. Such a trend would be a welcome shot in the arm to a construction industry going through lean times.

It’s so slow that some companies are traveling more to find business.

“We’re having to reach outside Mesa County,” says Jim Hopkins, owner of Haining Refrigeration in Grand Junction. His company installs heating and air conditioning systems and is working on a project at the Climax Mill in Leadville. Hopkins laid off 17 people in December, 2009, but refilled all the positions by last June and has remained at that level since.

The story is not as rosy at other construction related companies. And many anticipate that a lot of homeowners will offer some work in the form of scaled-down remodel jobs as they simultaneously keep their eyes on construction costs and home prices as the calendar moves toward 2012.