Sunday, December 09, 2007
Ripple effects of the housing market slowdown
Manufacturers of building products have been affected, in varying degrees, by the downturn in home construction.
Bricks and sticks build houses.
But only when houses get built.
At Old Virginia Brick's plants in Salem and Madison Heights and at the General Shale Brick plant near Coyner Springs, managers and employees have been gut kicked by the effects of the nationwide slump in the construction of new single-family homes.
Fallout from the subprime mortgage crisis -- including foreclosures, a mortgage loan credit crunch and flagging consumer confidence -- as well as soaring energy costs and a swirl of other economic factors have taken a personal toll nationwide.
After the real estate bubble burst, the trickle-down began affecting local folks with calloused hands and the regional employers who sign their paychecks.
Joey Story has worked five years for Salem-based Timber Truss Housing Systems, where he bangs together the "sticks" -- the two-by-fours, two-by-10s and two-by-12s of Southern pine -- to fabricate roof trusses.
"I like working with my hands. I like working hard," Story said, gripping a framing hammer.
But because of the ongoing slowdown, he said, "A lot of your friends have to find different jobs."
So, the brickmakers' pain is widely shared, in varying degrees, among a host of regional manufacturers of building products. Sales are off for these manufacturers, with declines in 2007 ranging from a low of about 5 percent to a high of roughly 30 percent.
Production lines have shut down, work hours have been cut and layoffs announced.
Gary Saunders is president of Timber Truss, a homegrown company that won a small business award this year from the Roanoke Regional Chamber of Commerce. In late November, Saunders said his company's sales started falling about a year ago, following years of exceptionally good market conditions.
"It was like a light switch went off," he said. "It just never came back."
Saunders estimates Timber Truss' 2007 sales are down between 15 percent and 20 percent when compared to 2006. A year ago, the company had about 260 employees companywide, a total that hovers now around 196. Timber Truss has two production plants in Virginia. One is in Salem and the other is in Orange, about 27 miles from Charlottesville. He said sales at the Orange plant are down dramatically.
Corky Clifton is sales manager for General Shale's brick plant in Botetourt County. Clifton said the plant's sales have been off "in the neighborhood of 25 [percent] to 30 percent."
As a result, General Shale, headquartered in Tennessee, has closed one of two production lines at its plant on Webster Road and laid off about 30 to 35 workers.
"We ship all over the Southeast and East Coast. We are feeling it in all of our markets," Clifton said.
Product demand in Northern Virginia has been especially slack, he said. "That market has probably hurt us more than any."
Two building-related manufacturers based in Rocky Mount have felt the housing market pinch, too. Employee hours have been cut back at both MW Windows & Doors and Mod-U-Kraf. The latter manufactures modular single-family homes, as well as modular multi-family housing and light commercial buildings.
Frank Hodges, Mod-U-Kraf's vice president of sales and marketing, said demand has been especially slow since summer.
"It really didn't hit us until July of this year," Hodges said. "We've seen a tremendous slowdown in orders for single-family, detached homes. Our business is still strong in multifamily and commercial buildings."
Hodges said Mod-U-Kraf has about 200 employees. In July 2005, the company announced plans for a $2.8 million expansion of its operations in the Franklin County/Rocky Mount Industrial Park. At the time, its work force totaled 229 and the company said it hoped to create 50 new jobs.
Focusing on steady demand for its multifamily and commercial building products will help Mod-U-Kraf weather the slowdown, Hodges said.
According to one construction industry analyst, that strategy seems sound.
"While residential construction is experiencing pain, the nonresidential market is strong at the moment," said Scott Hazelton in an e-mail. He is director of construction services for Global Insight, a company known for economic and financial analysis.
"To the degree that a manufacturer makes building products that can be used across structure types, they should market to the nonresidential sector for the near future," Hazelton suggested.
Old Virginia Brick's nonresidential customers have included the University of Virginia, the College of William and Mary and Wake Forest University. But Chris Moore, vice president of sales and marketing for Old Virginia Brick, said commercial work tends to represent between 10 percent and 30 percent of sales.
Moore said the company plans to close its plant in Madison Heights, near Lynchburg, a few days before Christmas. "It will probably be closed for about two months," he said, adding that most bricks produced at the Madison Heights plant are for residential construction. Work has slowed dramatically in Salem, too, he said.
"There will be some layoffs," Moore said.
Stephen Sears, director of marketing and communication for the Brick Institute of America, said the housing slump has hit the brick industry hard.
"Our industry is about 75 percent focused on single-family residential construction," Sears said.
But both Sears and Saunders see glimmers of hope shining through the gloom.
Sears said architects and green builders will favor brick increasingly because of its durability and composition. Brick, he said, is "baked earth." He acknowledged that kilns can consume a lot of fossil fuels, but emphasized that some brick manufacturers are finding alternative heat sources.
He said also that national news about the mortgage crisis and housing slump ignores the reality that market conditions vary from place to place.
Saunders said he is afraid relentlessly negative and "over-reported" coverage about the subprime debacle and other housing-related crises is scaring people. The fear blinds them, he said, to the opportunities created by the crisis.
"Right now is probably the best time to build a house," Saunders said. Sought-after contractors who were once hard to hire are more readily available, he said. In the absence of demand, Saunders added, the costs of many building materials have dropped, as have rates for 30-year fixed-rate mortgages.
Hazelton, the analyst, did not agree completely. Continuing declines in housing values, home builders without confidence in the market and a potential for mortgage rates to drop further might suggest holding off for a while, he said.
"A delay may yield a much better deal," he said. "By late 2008, the worst of the subprime mess should be behind us, although foreclosures will remain high. The recovery will be slow and prolonged, not a boom. But it will be a recovery in the second half of 2008."
Out at Timber Truss, pounding the sticks, Story also believes the wheel will turn.
"It will all come back. Everybody needs a house."




