Remodelers feeling the pinch

  • Article by: JIM BUCHTA , Star Tribune
  • Updated: September 14, 2011 - 4:22 PM

A weak market has made homeowners skittish, dragging contractors into a slump.

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A look at the economy as it affects the building industry - remodeling businesses in particular. Jen and Chris Romans are having the kitchen in their Minneapolis home remodeled by WB builders of Minneapolis. WB contractors Tim Brandvold and Scot Waggoner at left showed remodeling plans to home owners Chris Romans and Jen Romans in the kitchen to be remodeled.

Photo: Marlin Levison, Star Tribune

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Chris and Jennifer Roman loved everything about the handsome Tudor-style house on Minnehaha Parkway, so they bought it within hours when it hit the market.

Never mind that the kitchen had been remodeled in the 1980s with blue counters and bump-out windows, and the basement looked like a dungeon. Now, after two years of planning and saving, crews are ripping apart the old kitchen in preparation for a new one.

The dark and musty basement, however, is going to have to wait.

"We don't want to repeat history," said Jennifer Roman, referring to a big loss they took on a house they recently sold in Arden Hills. "If things were better and prices could support a larger loan, we would have done the basement at the same time."

It's a common story for homeowners across the Twin Cities. Many are moving ahead with improvement projects, especially since the unpredictable housing market could make it less appealing to upgrade to a nicer house. But they are scaling back their ambitions and spending less.

Home contractors are feeling the pinch.

"It's not easy," said Scot Waggoner of W.B. Builders. "We're working harder for less money."

Waggoner, however, isn't complaining. Unlike many of his competitors who have gone out of business, he said that he has seen an uptick in business, especially from people like the Romans, who are getting such good deals on houses they can finally afford to fix them up a bit.

The downturn in remodeling is one of the reasons the construction industry continues to hemorrhage jobs. In June, for example, the construction sector led job losses in Minnesota by shedding more than 2,200 jobs.

"Minnesota has been hit extremely hard, which is very surprising given how diverse our economy is," said Shawn Nelson, the president of local remodeling company, New Spaces.

Nelson reduced his staff by almost half a couple of years ago, cutting four jobs and not replacing a designer who left. In recent months, he has been getting more work, but the projects continue to be smaller than they were when house prices were still rising.

The prospects for a meaningful recovery are grim. In the Twin Cities metro area, the number of remodeling jobs peaked in 2007, but fell through the last quarter of 2009, according to the Residential Remodeling Index from Hanley Wood, a national housing research company. During the first half of 2010, business picked up slightly, but then started falling again. The index, which has a baseline of 100 established at the beginning of 2007, stood at 88 in the second quarter of the year.

The slump contrasts with the national data from BuildFax, which shows remodelling work picking up during the housing slump. But some observers think the surge mostly reflects fix-up work on foreclosure properties that previous owners have trashed. That's led to remo-booms in the cities hardest hit by foreclosures, such as Las Vegas and Phoenix.

In the Twin Cities, the picture is different, according to Joe Emison, vice president of research for BuildFax. Permit activity in the Twin Cities metro area has remained relatively flat, while homeowners are spending significantly less than they did prior to the recession. In April, for example, the BuildFax data showed that the average remodeling permit was worth about $1,600, down from more than $2,000 the previous year.

"There is a somewhat popular belief that remodeling activity is counter cyclical to new construction and that's just simply not the case," said Jonathan Smoke, an economist with Hanley Wood. "Both new construction and remodeling activity are correlated to overall economic performance."

Because only 15 to 25 percent of all remodeling activity is done with a permit, Hanley Wood also mixes consumer survey data with permit numbers to estimate how much money people are spending, Smoke said. People are more likely to try to avoid the extra expense of getting a permit during a sluggish economy.

"Someone doing a floor project isn't going to require a permit," Smoke said. "But that is definitely a home improvement project."

Despite the tepid spending by homeowners, the Twin Cities remains a Top-10 market for remodeling spending nationwide, said Sandra Meyer, executive director of the National Association of the Remodeling Industry's Minnesota chapter. Nevertheless, even routine maintenance is being deferred as homeowners await more positive economic news. "People are piecemealing out projects," Meyer said.

The Romans, for example, would have preferred to tackle their entire wish list all at once. Instead, they're going to wait until they can save a bit before they give their basement a much-needed makeover. "It's super-creepy," Jennifer Roman said. "It has dark purple carpet and weird electrical outlets."

One of the couple's challenges has been identifying comparable home sales in the neighborhood that will help their banker justify approving a loan to finance the project. Many houses are selling for less than their owners have invested in them, so that means more conservative approvals. While the Romans managed to get the kitchen project done, they won't pursue a financing package for the basement, at least for now.

With so many homeowners making similar choices, contractors are waiting, too.

"You would think that remodelers are partying all over the country," Smoke said. "But I'm certainly not seeing that."

Jim Buchta • 612-673-7376

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