Wednesday, February 08, 2006

In Come the Waves: Sacramento Job Losses Commence; Too Many Real Estate Agents

Last week the Sacramento Bee balanced a rather gloomy article with this:

There are some signs the gloom of the last few months may lift...The region is adding jobs at a respectable clip, which historically has meant housing demand won't plummet.
I responded by saying "but how many of those jobs are tied to the real estate industry?"

Well, the Sacramento Business Journal (or via MSNBC) has shed a little more light on this subject:
Construction is a big factor in the local economy and has been one of the strongest job sectors in the wake of the economic downturn at the start of this decade. In Yolo, Sacramento, El Dorado and Placer counties, construction accounts for 70,400 jobs, largely in homebuilding, according to the state Employment Development Department. Construction accounted for about 8 percent of the region's jobs at the end of 2004 -- up from 6.6 percent in 2000. Last year, construction added 3,200 new jobs, or 17.5 percent of the region's total gain. This year could be the first in over a decade that the construction job count drops, based on the downturn in sales and the layoffs, said David Lyons, a labor market analyst with the department. But construction is almost overdue for a correction; the region rode out the last downturn with no slowdown in construction, he said.

In Sacramento, a downturn in home construction has more economic impact than it would in many other places, because more companies are suppliers or subcontractors here than is typical, said Robert Fountain, an economist with California State University Sacramento. In 2004, Fountain did a study showing that the roughly $4 billion spent on new-home construction in Yolo, Sacramento, Placer and El Dorado counties during 2003 resulted in a $1.6 billion economic benefit for the support industries. Homebuilders have spent $16.5 billion here on houses, condos and apartments from the start of 2002 to the end of last year -- an estimate based on the assessed valuation of projects when their building permits were issued, according to the Construction Industry Research Board. The volume peaked at $4.5 billion in 2004, and dropped by some $680 million last year. Using Fountain's formula, 2004's $4.5 billion in homebuilder spending had a $1.8 billion impact on support industries, and last year's $3.8 billion in construction translated into $1.52 billion for the support companies, a 15 percent drop that is showing up in the layoffs. Fountain and Lyons, however, said that jobs lost to declining home construction often are picked up by rising nonresidential construction.
And this doesn't even include all the real estate agents that have been added over the last few years. With the real estate market in Sacramento landing, job losses in construction and constuction-dependent industries are now being noticed:
With the decline in new-home sales, local suppliers and subcontractors have laid off hundreds of workers in the past few months. Two of Greater Sacramento's largest private employers, Pacific Coast Building Products and Beutler Corp., are among those that have laid off workers or left vacant positions unfilled. It's an unfamiliar situation after years of a hot homebuilding market that had some companies scrambling to find enough workers, and employers say it represents more than just the usual winter slowdown.

New-home sales in the region dropped 17.8 percent last year, with a 56.7 percent drop from late 2004 to fourth-quarter 2005, the biggest drop for a quarter since the homebuilding boom began in 2002. That has led to a slowdown in jobs related to the new-home market. It's more like a pinch than a heavy blow for the industry so far. "I don't think anyone's in a panic mode," said David Lucchetti, president of Pacific Coast Building Products. But he and all those who depend on homebuilding are watching sales numbers this year with concern. No one knows what comes next. Lucchetti said Pacific Coast Building Products has laid off 50 of its 3,500 workers. The company supplies lumber, trusses, roofing materials, tile and other materials to homebuilders.

The cuts went deeper at air-conditioning contractor Beutler Corp., which as a result of the housing downturn has laid off or lost to attrition 250 of its 1,500 workers, said president Rick Wylie. That figure includes 175 workers in Sacramento. Beutler is Sacramento's largest mechanical contractor. Wylie said similar layoffs have been fairly typical for the company in winter. Last winter, for the first time ever, Beutler scrambled to keep everyone employed through the down season. While sales are going well, Wylie said, the downturn in housing sales led the company to drop that extra effort this winter.

Likewise, most of the suppliers and subcontractors contacted for this story say they have laid off workers because of the housing downturn. Most say it's the first time since the new-home boom began in 2002 that they've let go workers for reasons other than the change of seasons. Some businesses said they have not been hit, but they get hints of a downshift. For instance, Steve Benjamin, owner of Production Framing Systems, reported that he has laid off 200, but said "I don't feel like I'm down any more than I would be with the (winter) season." On the other hand, he added, "I can see the decline going on around me." And some of his homebuilder customers have asked for a break on prices to make it easier to offer concessions to the scarcer crop of homebuyers.

New homes need furnishing, which means sales for local furniture stores and other home-goods retailers. Effects on those businesses are unclear: Some attribute slower sales to changes in the housing market, while others say they've seen no drop in sales. "January's been pretty tough. We're struggling to stay even with last year," said Harris Blickstein, chief operating officer of The Room Source, a furniture-store chain based in Sacramento. For years the retailer enjoyed the effects of a booming housing market -- the large number of houses sold, their rising values and numerous home-equity loans being made. Now people don't feel as rich, Blickstein said. The Room Source isn't planning layoffs or cuts, he said. Instead, "I may spend more ... on advertising." The Room Source can weather a slowdown; smaller, undercapitalized businesses may not, he said...
Ah yes, the "wealth effect" hits the Sacramento housing market.
"It's hard for us to lay people off. Some took it hard," said Jim Colafrancesco, owner of Colafrancesco Framing Inc. He laid off 48 of his 200 workers, and may lay off 25 more if things don't improve. "I told them, You're not fired, you're just laid off.' "

Subcontractor Jay Fischer, of Fischer Marble & Tile, has laid off 50 of his 150 workers. "The people laid off will come back when sales come back," he said. Veteran framer Colafrancesco said he's been driving around, eyeing subdivisions for signs of life. "I'm not seeing as many concrete foundations, so I think February could be slow," he said.
Meanwhile, the The Bakersfield Californian reports on the glut of real estate agents:
Last December, Kern County's 4,382 licensed real estate agents shared less than 500 house sales. With so many agents and sales dwindling, competition is brutal. "A lot of them just can't be making a living, period," said longtime agent Gary Belter with Coldwell Banker. Hundreds of new real estate agents have flooded Bakersfield's hot housing market in recent years, hoping to make a quick buck. But as prices cool and houses become tougher to sell, experts say, many will abandon their new profession just as quickly as they embraced it.

It's happened before. "Real estate goes in cycles just like the stock market," said associate real estate professor Chuck Delaney at Baylor University in Texas. People try to capitalize on it. If the boom ends, many will get out and the strong will survive, Delaney said. "It absolutely happens everywhere" when the market heats up, said real estate professor Susan Wachter with the University of Pennsylvania. Agents jumped into California's market in the mid-1980s, Wachter said, before it nose dived in the early 1990s. Some brokers are making only one or two sales, she said. Others aren't doing any business at all. "That's not to say there aren't stars with the golden Rolodexes," she said.

Feeding frenzy Statewide, there are now more than 476,000 licensed real estate brokers and salespeople. That's roughly one for every 77 Californians -- that's more per capita than either physicians or public school teachers. "That's a lot of licensees for a relatively small pie," said Tom Pool, a spokesman with the state Department of Real Estate.

Locally, Bakersfield Association of Realtors membership jumped by 160 percent in five years to more than 2,100. For those who entered the industry in the past few years, houses have seemed to sell themselves. Some got lazy and just haven't wanted to come into the office, said Robin Ablin, owner-broker of RSC Realty. They haven't learned the skills needed to survive in a slow market, he said. "It's the nature of sales," Ablin said. "When it's easy, everybody jumps." But real estate isn't so easy. It's full of rejection, late-night phone calls from panicked clients and the uncertainty of where the next paycheck will come from and when... "

In for the long haul Marco Velazquez figured he'd make thousands of dollars right away after trading his steel-toed boots and Wranglers for button-down dress shirts and slacks seven months ago. [Farmer-turned-real estate agent story here] Instead, the 30-year-old ended up spending roughly $18,000 of his savings on real estate classes, a laptop computer, association fees and other startup costs. Then there were the necessities like rent and gas. "It was scary," said Velazquez, who used to make around $80,000 a year as a supervisor for a scaffolding company. But the more flexible schedule was important to Velazquez, so he could spend more time with his three children. In time, his list of clients grew. Even though the market isn't as "crazy," the agent said he isn't worried about his future in the business. He keeps regular office hours and attends a weekly caravan group. The group of agents checks out houses around town and shares what listings they have with each other. It's a great way to get information and sell properties faster, Velazquez said.

Ten agents showed up to the caravan on a recent Thursday morning. Chuck Dawson, owner of Dawson Realty, helps organize the frequent field trips and expects more agents to show up as the market gets tougher. Dawson also believes hundreds of agents could leave the industry this year...


Lander said...

Another tidbit:
Construction employment accounted for 24% of all new jobs created since 2000.

-Matthew Newman, 10-11-2005, pdf presentation, pg. 19

Lander said...

Welcome readers!