Bracing for tough times; Network of industries linked to home construction and repair affected by recessionary climate.

Byline: Martin Luttrell

The drop in home sales, spate of foreclosures and ongoing credit crunch have been a nuisance for the real estate market, and the spring season, usually a busy time for home improvements and other ancillary businesses, is not expected to be very green this year.

Housing sales in Massachusetts have fallen for 34 of the last 36 months and the escalating foreclosure rate is dumping more properties on the market, delaying a recovery. Lenders, meanwhile, are more closely scrutinizing would-be borrowers.

U.S. spending for remodeling has declined each month since the second quarter of 2007, according to data from Harvard University's Joint Center for Housing Studies. That decline is projected to be as much as 2.6 percent in the third quarter of this year.

"Since consumers are less confident, and their credit and wealth are affected by the real estate and financial crisis and liquidity problem, I expect to see consumer spending weak in the coming year," said Alan Clayton-Matthews, an associate professor at the University of Massachusetts at Boston and a director of the New England Economic Partnership.

"Some people who might have had their lawn landscaped won't this year," he said.

As a result, contractors that expanded payrolls during the housing boom are now having trouble finding work and are laying off workers or using fewer subcontractors, he said. Construction-related tradesmen who were flooded with work a few years ago are taking jobs farther away or doing work they had bypassed earlier to stay in business, he said.

"I am getting in my mail a lot of fliers from contractors asking if I need things done," Mr. Clayton-Matthews said. "Everything from roofing to electrical. My sense is that contractors are feeling this and trying to market themselves the best they can. If the pie is shrinking, they want to get a bigger piece of the smaller pie."

With new home construction cut back sharply, the need for drilling wells has just about dried up, said Phil Sontag of Sontag Pump, who works with his son's company, E.R. Sullivan Well Drilling. Wells for new houses was the main business for the two Sterling companies, but for more than a year they have moved into the irrigation side of drilling to get by, he said.

Even with that, jobs are fewer, and expenses - particularly fuel - continue to climb, he said.

"A couple of years ago, if someone called from Taunton, we'd recommend they call someone closer," Mr. Sontag said. "Now, if we get a call from outside the area, we'll go. ... A few years back we had two rigs going, and we were 60 to 70 jobs behind. Things are tough. We're only one job behind now.

"I'll burn 24 to 28 gallons of diesel fuel an hour when the truck is drilling," he continued. "It uses a lot of fuel, and the price of fuel is killing us."

Home sales in Worcester Country fell 40 percent between 2004 and 2007 and Kevin Giblin, president of Brendon Homes Inc. in Southboro, said his residential housing business has fallen sharply. In response, he has shifted to custom high-end homes and high-end remodeling to get by until the market for new construction returns.

Mr. Giblin is currently building the Adams Farm development on Route 140 in Shrewsbury, a 90-unit multi-family project for residents 55 and over.

"We had done $40 million to $50 million a year in homes," Mr. Giblin said. "We're off that by 70 percent now.

"Now, we build individual custom homes. We continue to build the projects we already had, but we've slowed down. I anticipate it being flat."

Michael J. Lynch, an economist with Global Insight of Waltham, said new home construction is the first casualty of the housing market, but ancillary businesses are affected as well by the poor market, reduced home equity and borrowers having a harder time getting credit.

"Some of the problems are less money for renovations, and people can't obtain home equity credit for construction they would ordinarily have done," he said.

But problems in home remodeling and improvements sectors are not uniform, and contractors are getting work in the more affluent communities, he pointed out. The market for high-end homes and improvements has not taken as much of a hit, and Central Massachusetts has a mix of affluent and medium income communities, he said.

"We see almost no impact in $1 million houses," Mr. Lynch said. "In the high end market, sales aren't much of a problem. Working on them is not a problem. Ultimately, they have financial security or cash on hand to build these houses or do work in these houses.

"Unfortunately, we've had people in the mid-range income who don't have the money to build. That segment of the market was a little stretched. Some of them were told they could refinance when their rates adjusted, and expected the home to keep appreciating, but that was unsustainable."

Guy Webb, executive director of the Builders Association of Central Massachusetts, said his 262 members are faring well considering the slow economy, with many adjusting their business plans to take in jobs they might not have considered before the slowdown. Some members are remodeling kitchens, building decks and doing other home improvement projects, but they are not booking as many jobs as in prior years, he said.

"I don't think anyone is expecting a seasonal surge," he said. "There was a time during the boom when there was no surge, they were busy all the time. We're not in a boom, but a flat market. It won't be universal. Not everybody picks up and has a good spring and summer."

Some companies are better equipped to ride out the tough times, having set money aside or by diversifying, Mr. Webb said. The credit crunch has probably hurt business as much as the slow real estate market, he said. But builders who branched out during the slowdown have generally positioned themselves to get by, he said.

"Some guys who traditionally would stay away from the home improvement market are there now because they want to keep going," he said. "Some companies are diverse enough to do a lot of things, and already did home improvement as well as new construction.

"Foreclosures aside, I think it (housing market) won't go down any more. But, before we see any long steady climb in sales and permits, it will take about a year."

On a brighter note, John F. Merrill, market president of Central Massachusetts at Sovereign Bank, said contractors he deals with are staying fairly busy. Central Massachusetts is faring better than many areas in the country that were overdeveloped during the housing boom, he said. The area's diversified economy also helps during a time of slow job growth, he said.

The construction industry in the area has shifted away from residential work to commercial and institutional projects, such as hospitals, he said. The small, independent contractors that depend on homeowner spending will feel it more, as consumer spending drives about 70 percent of the gross domestic product, he said.

"They're (homeowners) going to be restricted," he said. "The cost of living, gas at $3.25 a gallon, and heating oil and food prices going up will mean there's less money available to do the nice-to-haves, in addition to sprucing up the house.

"We have some small homebuilders in our portfolio that build one or two a year. They are trying to pick up all the remodeling and improvement jobs they can. There is always a market for the high end, and those consumers can get a better price because contractors are looking for work."

Christine Komenda, marketing manager of Woodmeister Master Builders Inc. in Holden, said the company has widened its business from a cabinetmaker to a builder of high-end homes. Business has been healthy and the company has hired staff over the last year, she said.

"The caveat to all this is we serve an affluent market, which appears to be less affected by economic fluctuations," she said.

"Overall, our business has not been affected by the decline in the housing market. As a company focus, however, we shifted gears over the past couple of years to increase our new construction business and to position ourselves as a master builder company.

"These strategic moves have opened doors and opportunities in the markets we serve. We see that as a bigger growth potential to our total earned revenue."

Mr. Giblin said that contractors who have been in business since the housing slump of the late 1980s have learned to make adjustments and reduce their overhead to get by.

"I think it's going to be a slow year," he said. "I'm not thrilled with the prospect of slow work, but I have a game plan."

ART: PHOTOS; GRAPH

CUTLINE: (1) Brendon Giblin, left, vice president of Brendon Homes Inc., and his father, Kevin Giblin, president, are shown at Adams Farm, their new subdivision in Shrewsbury. (2) The housing slump has cut the available work for Jeffrey A. Garney of Sterling, head driller with E.R. Sullivan Well Drilling of Sterling. (GRAPH) U.S. homeowner remodeling

PHOTOG: (1) T&G Staff/PAUL KAPTEYN (2) T&G Staff/TOM RETTIG (GRAPH) T&G Staff/DON LANDGREN JR.