Residential builders are dealing with the pangs of slow growth enhanced by mountainous material costs, longer timelines, more stringent regulations and financial indecision.
“It”™s all about building confidence and the perception that things are stabilizing,” said Mike Palumbo, president of the Home Builders Association of Fairfield County and co-owner of ERI Building and Design in Darien. “The building industry is going to lag behind the rest of the recovery for the first time. At this point slow movement in the market is good movement; 2012 is expected to be just as tough. It”™s not until 2013 that our industry will see a real return.”
In terms of residential building, Palumbo said, there are about 30 percent fewer builders in the market than there were at the start of 2008. Even with the shrunken competition, there has only been 2 percent to 3 percent growth as the economy has recovered, he said.
As projects have begun to return over the last two months, the timeline on those projects are long, he said.
Bill McGuinness, partner at Palmer Hill Partners, which is building a residential development in Stamford, said there has even been a shortage of trade labor because often the scaled down staffs can”™t scale up quickly enough.
“This business is still slow,” Palumbo said. “There”™s the financial aspect of it, even though rates are low it”™s tough for homeowners to close loans. A homeowner can have plenty of assets and money and still take a very long time to close.”
He said loans are affecting new construction more than remodeling, “but again if that homeowner is looking for a home equity line and can”™t close on it, then obviously the project is put off. You”™re seeing loans taking so long that second appraisals have to be done because of the amount of time that has passed to make a loan. Confidence is still weak.”
Palumbo said contrasting week-to-week markets reports have prolonged the weak consumer confidence.
Also raising builders costs of doing business are unpredictable and high material prices.
“Insulation has just gone up 10 percent in price,” Palumbo said. “That”™s a prime example of what builders regularly have to deal with in terms of cost. We”™re seeing it across the board.”
Palumbo said there are particular products like wallboard, insulation, cedar siding, roofing and copper that have seen the greatest price volatility and increase.
According to a study this month by the Associated General Contractors of America, the producer price index on weighted average of the prices of all materials in residential building have gone up 9 percent in the last six months.
“These materials affect the general contractors as well as the trades,” Palumbo said. “We are all seeing major fluctuations. A lot of it is the petroleum, gas prices, as well as world-stage events that can cause major spikes in the materials.”
McGuinness said material costs have become one of the hardest building expenses to predict.
“Despite the slowdown in construction the massive inflation in material pricing is a very frustrating issue,” he said. “Everything is related to oil because of transportation to the site, but there are also the things that are petroleum-based like asphalt roof shingles that have spiked strongly; but it really is everything.”
Palumbo said the rising material prices are coupled with the loss of value prices from suppliers because less volume is being ordered.
“You get better pricing when you do more volume,” Palumbo said. “During the downturn many people had the perception that building cost should be 40 percent less, but our costs were still the same for doing business, with higher material costs.”
Palumbo said the builders”™ battle against cost is not being helped by an ever-increasing amount of regulations.
“The new regulations through the EPA are affecting all of us,” Palumbo said. “If you”™re following the regulations and you”™re certified, you”™re spending more money and adding a cost just to do it the right way.”
Palumbo said the problem is many residential contractors on the market are not certified, or insured, for that matter.
“It makes for a very uneven playing field,” he said.
Unregulated building is hard to catch, in light of a limited number of inspectors, he said.
“It will only really come out if someone blows the whistle.”
Palumbo said unregulated builders can undercut and price jobs often a third of the price of those builders who are regulated.
“People are still looking for the price rather than the quality of the business,” Palumbo said. “Right now it”™s very tough to sell on the quality part of the business.”
Mr.Palumbo provides us with a well thought out & on target summary of the current state of the construction business in SW CT. As he points out, the unlicensed “contractors” are a disservice to everyone and more state effort should be put to weeding them out.