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Stalemate

Homebuilders have reached a stalemate with potential
customers.

Homebuilders have reached a stalemate with potential
customers.

Interest rates are low, and regional builders are offering
houses at reduced prices, but it doesn’t matter – consumers aren’t budging. The
slumping economy has caused potential buyers to lose confidence.

Customers are waiting for the economy to bounce back before
they commit to such big-ticket purchases, and builders said the economy cannot
turn around until consumers start buying.

Headlines don’t seem to be driving confidence back up in the
marketplace, as businesses continue to close and foreclosures sweep the
country.

Last year, there were 81 percent more foreclosures
nationally than there were in 2007, and real estate analysts predict hundreds of
thousands more this year. There were 2.1 million foreclosures last year in the U.S., which
means one in every 54 houses went into foreclosure, according to Realty Trac
Inc.’s U.S. Market Foreclosure Report. Realty Trac is a real estate Web site
that monitors and lists foreclosures, pre-foreclosures, auctions, new
construction and other properties.

Last week, Congress released the second half of its $700
billion stimulus package to President Barack Obama’s administration. Obama is
expected to use between $50 billion and $100 billion of the remaining $350
billion to stem foreclosures.

But builders said they want something else to get buyers
moving. They want Congress and the new administration to incorporate tax cuts
and interest-rate incentives into the second stimulus to help shore up the
housing industry. Too much inventory and the subprime-loan fallout triggered
the economic nosedive, so the root of the problem has to be addressed in the
stimulus package, builders said. The next package is expected to weigh in at
$825 billion in spending and tax cuts.

The Lemoyne-based Pennsylvania Builders Association (PBA)
has teamed up with more than 600 organizations that are part of the National
Association of Home Builders’ Fix Housing First initiative. The initiative
urges Congress to use a chunk of the next stimulus package to usher in
house-buying incentives with a portion of the next stimulus funding.

That money should give homebuyers a 10 percent tax credit of
between $10,000 and $20,000 on the houses they purchase, builders said.

They also want the stimulus package to offer 30-year
fixed-rate mortgages of 2.99 percent for customers who buy through June 30 and
a 3.99 percent rate for those who buy from July to Dec. 31. 

Congress is expected to pass its next stimulus package in
early February, and as far as local builders are concerned, it couldn’t come at
a better time. Year-end housing sales statistics show the housing bust has
arrived in the midstate.

Last year, there were 7,159 houses sold in the greater Harrisburg area, which includes Cumberland, Dauphin and Perry counties. That
is an 18 percent skid from 2007, when 8,370 houses were sold, according to
Central Penn Multi-List, an arm of the Greater Harrisburg Association of
Realtors
that tracks local housing statistics.

In York
County, the picture is
even worse. Last year, house sales were down 27 percent compared with the year
before, according to a report from the Realtors Association of York and Adams
Counties Inc.
Last year, 3,886 houses were sold in York County,
down from 5,307 the year before.

In Lancaster County, housing sales last year were not much better
than they were in York
County. There were 3,863
houses sold in Lancaster
County through October,
down from 4,951 sold throughout the same period in 2007, according to the
latest numbers from the Lancaster County Association of Realtors. That is a 22
percent decline.

As builders look to the Obama administration for help, they
are taking on a variety of jobs to keep their companies afloat. Delving into
commercial construction and remodeling work is a necessity now, some builders
said.

“If I wasn’t diversified, I don’t think I would be able to
make it,” said Joe McCorkel, president and owner of McCorkel Construction
Services
, based in Carlisle.

McCorkel builds townhouses and single-family houses. His
company also constructs commercial buildings and remodels houses.

Last year, after 34 years in business, McCorkel’s new-house
construction fell off completely, he said. In a good year, the company builds 25
to 30 houses. Last year, it built two.

Other midstate builders are feeling the sting, too, said
Scott Elliott, director of public relations and public affairs for the PBA.

Last year, new-house construction through November in the
midstate was down 23.9 percent compared with where it was a year ago, according
to the U.S. Census Bureau.  

Builders such as McCorkel, who are diversified and seasoned,
are the ones who will be able to weather the economic funk, Elliott said.

“They shift gears between new-house construction, commercial
and renovations. The challenge is that there are already companies that
specialize in commercial work and renovations,” Elliott said.

Some home remodelers are reaping the benefits of the down
economy. When the economy softens, customers often elect to remodel and expand
their houses instead of buying new. Many times, it’s because they are afraid
they will not get the price they believe they deserve when they sell their
current house.

Swatara
Township’s Gary Deimler
and Sons Construction Inc.
has seen an upswing in business since the economy
went south. The company specializes in remodeling work.

“Our leads are up about 15 percent to 16 percent, and sales
are about the same over last year,” said Craig Deimler, vice president of the company.
“Most of our clients want to stay in their homes. We have heard people say, “I
don’t want to look into buying a house.'”

Remodelers are not immune, however, depending on the size of
a remodeling job. Some customers of Lemoyne’s Excel Interior Concepts and
Construction
have been reluctant to sign off on large remodeling projects at
their houses, too, said Jim Mirando Jr., the company’s president.

Excel specializes in new home additions. Mirando has noticed
customers holding back on big remodels that can cost upward of $200,000.

“We are seeing a general procrastination. People are waiting
for things to get better,” Mirando said.

When builders lose work, the sting is felt across the
community.

When someone spends $200,000 with Mirando’s company, that $200,000
is spread out to building material suppliers, labor suppliers, subcontractors
and more, he said.

In a down economy that has staying power, it will take more
than just a good business model to stay afloat. Builders want Congress to step
up and help, but builders are still part of the equation, too, Elliott said.

Being diversified helps. However, the days of sitting back
and taking orders are gone, Mirando said. Builders have to market smarter and
work harder. Face-to-face interaction is more important than ever, and touting
a company’s long history is a good reminder for customers, builders said.
Builders, the Obama administration and Congress are going to have to get on the
same page.

“Three or four years ago, it was all about builders,”
Elliott said. “The builders are still part of the solution, but they can’t
change it on their own.”

Weathering the downturn

Here are some survival tips from experienced house builders
throughout the region who are keeping their businesses moving in the struggling
housing market.

“We branch out to where we do whatever work is available. We
do restaurants, bank work, office buildings and warehouses. Basically, it’s all
additions and stuff. We even go as far as snow removal and excavation. It
doesn’t totally bridge the gap, but it helps. It keeps most of our workers
employed. It also broadens your knowledge of different work and gives us more
challenges.

We’re off by about 40 percent. But we landed a few
commercial and residential remodeling jobs. That will bring us back within 10
percent. I would tell (builders) to diversify, take on new challenges. It’s a
help, not a cure-all.”

– Joe McCorkel, president and owner, McCorkel Construction
Services, Carlisle

“Two years ago, I started a renovation division that started
out kind of slow. Now we’re doing a lot of sunrooms, kitchens, bathrooms,
kitchens, basements and decks. And we are seeing some light commercial
remodeling as well.

Yes, our (house construction) volume was down a little bit.
I was probably down about 10 percent last year. We tripled our renovation
dollars in 2008 from 2007.

I would say diversify, but stay within your niche, and
define your niche well. Some people get outside their niche and don’t perform
well. We remain strong because we give consistently steady product. I’m finding
that now even though things have slowed down, clients are making decisions
based on quality and relationships more than they were several years ago. They
are being cautious. That’s huge right now. If you have done your work correctly
in the last 10 years, you are doing well now.

A few years ago, anyone with a pickup truck, a saw and a
hammer could get work. This change in the market has weeded those companies
out.”

– Jeff Musser, president, Musser Home Builders Inc., Dillsburg

 
“We diversified. We always have done additions remodels and
things like that, but we also diversified
into light-commercial. It used to be that (light-commercial) would fall into
our laps, and now we actively pursue light-commercial jobs. We bid those and
chase that. We’re now 70 percent light-commercial and 30 percent residential.
When times are good, like three years ago, 90 percent of our sales were
residential.

We are rolling with the punches. Our background is
commercial anyways. I was trained in commercial. The thing that is fortunate
for me is my construction background. I gotta tell you that if a lot of
residential builders aren’t qualified for commercial work, they are going to
get clobbered. You are playing with the big boys now. The architects, schools,
business owners, hospitals, etc., rules are strict. Light-commercial is about
the only option.

You have to work, keep your nose to the grindstone, and your
numbers better be right ’cause owners are taking advantage. If you want to
build, now is the time to build. It’s a buyer’s market. We are working like
dogs and bidding on light-commercial projects.”

-Mark R. Simeral, chief executive officer, Simeral
Construction Co.
, Manheim Township, Lancaster County

Sign of the times

Most economists agree that following the residential real
estate market is a reliable way to gauge the health of the economy. When the
housing market starts bouncing back, usually better days are ahead.

Measuring housing inventory and the rate at which it is
being purchased helps experts predict where the economy will be six months to a
year or more down the road.

Experts across the U.S. continue to say the 2009
economy will be even worse than last year. But housing trends indicate that
things will start to rebound by the third quarter of this year, said William C.
Dunkelberg, economics professor at Temple
University’s Fox School of Business in
Philadelphia.
Dunkelberg is also the chief economist of the National Federation of
Independent Businesses and Chairman of New Jersey’s Liberty Bell Bank.

The housing market will start showing signs of life by
spring and the economy will slowly follow, Dunkelberg said. There were between
800,000 to 850,000 houses sitting empty at the end of 2008. As those get
purchased, builders will get more work and so will material suppliers, labor
supplies, real estate agents and numerous other businesses that see ripple
effects from house construction. 

Contractors build approximately 1.2 million houses across
the U.S.
a year in a good economy, Dunkelberg said. Construction at the end of last year
was off by about 700,000 houses. The economy will slowly improve as that number
dwindles. Housing generally makes up about 5 percent of the national Gross
Domestic Product. It’s at 3.5 percent, he said.

The housing crisis is ending, said Deane Schwanke, senior
vice president of publications and awards in the Global Information Group at
the Urban Land Institute in Washington,
D.C. But we should not expect an
overnight change in the housing market or the economy. In fact, we have yet to
hit bottom, Schwanke said.

There will be a long, lurching recovery period, Schwanke
said. House prices need to return to 2003 and 2004 prices to help improve the market. But better days are ahead.

“The worst is behind us,” Schwanke said.

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