Remodeling slump benefits clients

NEW YORK — Contractors are bending over backward — even for small jobs like bathroom renovations and cabinetry — as the housing slump infects the remodeling industry, and gives homeowners the upper hand in price negotiations.

While not taking the hit that the for-sale market is, home remodeling has slowed as pessimism about home values sets in. Activity remained sluggish in the second quarter, according to an industry index from the National Association of Home Builders, and expectations for future activity were nearly flat.

Total money spent on home improvements and maintenance is expected to dip this year by more than 4 percent to $216.3 billion from $226.4 billion in 2007, the NAHB estimates. The group doesn't expect spending to reach 2007 levels again until 2010.

The pain is most acute in markets where home values are sliding.

"There are some weeks that are good, but there are more weeks when I think my phone is disconnected," said Greg Miedema, president of Dakota Builders in Tucson, Ariz. "All in all, our calls are definitely down."

He estimates that home remodeling activity is off by 10 percent or more in his area. Homeowners are shopping around more, taking longer to make a decision and scaling back their projects.

"Instead of a bathroom remodel, a homeowner will just do a new vanity and countertops," he said.

In the greater Chicago area, Michael Menn's business is holding up because he caters to high-end clients who "still have money to spend," said the principal of Design Construction Concepts Ltd. in Northbrook, Ill.

But his remodeling buddies who work on mid-priced projects are reporting a severe slowdown.

"(Homeowners) are waiting to see if they want to spend the money on renovations, or they're doing smaller projects or putting projects on the back burner altogether," Menn said.

The industry's recovery is expected to be slow and depends on three factors: a stable economy, looser lending standards by banks and easing up of product prices. Higher commodity prices from oil to copper have increased costs of materials such as wiring, plastic pipes and roof tiles.

A recovery in the housing market also is key to bolstering the remodeling industry.

Falling home values are eroding equity at a rapid clip, shrinking a resource that Americans often tap for home improvements. And homeowners are less inclined to invest cash in a depreciating asset.

"If people don't feel good about their equity situation, they're not going to add on that master suite," Miedema said.

The housing slump also is introducing new competition into the remodeling arena as smaller home builders diversify their businesses to weather the downturn.

These home builders are snapping up larger remodeling projects like additions, recreation rooms and porches, which can run as high as $400,000, said Alan Hanbury Jr., treasurer of House of Hanbury Builders Inc. in Newington, Conn.

"They've never done that before," Hanbury said. "They're literally looking for remodeling work whereas three or four years ago they pushed it off to guys like us."

Hanbury said his company typically does three to four larger jobs ranging from $80,000 to $150,000 every year. But this year, the company hasn't logged any large jobs as builders compete for a shrinking number of projects. The company's average job size has fallen to $6,000 from about $60,000, he said.

Remodelers are tightening their wallets and courting business they wouldn't otherwise to survive the slowdown. This is good news for homeowners who want to make renovations, Hanbury pointed out, because they have more bargaining power and more qualified remodelers to choose from.

Miedema is taking calls he wouldn't have a few years ago including smaller jobs, those homeowners who seem less committal, and those a bit out of the way.

"Frankly, I've got the time now," he said.