Construction riches to rags

[c1ue]

Found via Patrick.net

http://www.csmonitor.com/2008/0812/p01s01-usec.html

California's Central Valley already sits at the center of the housing crisis, but high prices and contracting incomes are now compounding the foreclosure problem.

Investors and subprime borrowers took the brunt of the first and second wave of foreclosures. Now, the broader economic stagflation here imperils another batch of borrowers.

These homeowners have mortgages higher than their home's value, and the payments have gotten beyond their reach, not necessarily because interest rates have risen, but because their budgets have tightened.
That's what happened to Bob Scarpitto. He used to donate his time installing pools for needy families on the TV show "Extreme Makeover: Home Edition."

Now, he's the one down and out.

Mr. Scarpitto's pool business dried up last year when banks tightened home equity lending. He went from a $300,000 salary to zero trying to keep the business afloat. With no income and a higher cost of living, he lost his modest home to foreclosure. He sold everything, except a prized boat, which he just put on craigslist.

For Scarpitto, the high prices hastened the depletion of his savings and the day in April when he had to hand back the keys of his home. He took out a $320,000 mortgage in 2005, but a neighbor short-sold his house recently for $180,000.

"I've lost everything. I had more when I started the business in late 2000 and I thought [then] I was taking a huge risk," says Scarpitto. "I've been slowly selling it off to keep afloat and try to find gainful employment."

[swgprop]

Re: Construction riches to rags

Sad stories are plentiful. I found this excerpt rather telling:

"The tough economy and inflation are piling onto the housing market's woes, says Merced Mayor Ellie Wooten, who is also a real estate agent. "There are so many elements involved in this that realistically it's terrifying." "

Somewhat off topic but I find the continued volume of CA RE license issuance to be surprising:

http://www.dre.ca.gov/gen_stats_07_08.html



Significantly down from peaks but still, 2K new licensees a month, jumping into a pool already populated by 1/2 million in this market. One licensed agent for every 66 residents (children included).

Maybe they just like to hang the license on the wall and gaze at it ...

[mikedev10]

Re: Construction riches to rags

wow. that really is quite an amazing amount.

[don]

Re: Construction riches to rags

I went through 3 boom and busts when I ran a contracting business. Each had its own peculiarities but one constant was the surge in newbies that occurred in the latter half of the good times. That's when many experienced tradesmen decided the time was right to 'step out' and make a go of it. They generally mucked things up for the old timers, under bidding, etc but their comeuppance came when the bad times arrived. There is a bumper harvest of these hard working, business deficient sole proprietors- now dazed and desperate- in the unfolding calamity.

[jimmygu3]

Re: Construction riches to rags

Sad stories are plentiful. I found this excerpt rather telling:

"The tough economy and inflation are piling onto the housing market's woes, says Merced Mayor Ellie Wooten, who is also a real estate agent. "There are so many elements involved in this that realistically it's terrifying." "

Somewhat off topic but I find the continued volume of CA RE license issuance to be surprising:

http://www.dre.ca.gov/gen_stats_07_08.html



Significantly down from peaks but still, 2K new licensees a month, jumping into a pool already populated by 1/2 million in this market. One licensed agent for every 66 residents (children included).

Maybe they just like to hang the license on the wall and gaze at it ...

I think it's people who lost their real jobs, couldn't get a new one, and decided to get their real estate license.

[metalman]

Re: Construction riches to rags

I think it's people who lost their real jobs, couldn't get a new one, and decided to get their real estate license.

now they're screwed.

[GRG55]

Re: Construction riches to rags

I went through 3 boom and busts when I ran a contracting business. Each had its own peculiarities but one constant was the surge in newbies that occurred in the latter half of the good times. That's when many experienced tradesmen decided the time was right to 'step out' and make a go of it. They generally mucked things up for the old timers, under bidding, etc but their comeuppance came when the bad times arrived. There is a bumper harvest of these hard working, business deficient sole proprietors- now dazed and desperate- in the unfolding calamity.

Every housing cycle it seems experienced contractors logically expand their business to meet rising demand, as you point out experienced trades underestimate the complexities of running a business and supervising other people, and [somewhat analogous to naive first-time buyers flocking into home ownership] the void at the bottom fills with anybody carrying a saw and hammer & calling themselves a "finishing carpenter".

I notice on my own project, which I deliberately delayed for 2 years, that the most reputable of the local contractors/trades in my area are now available on short notice (days or weeks, instead of many months as had been the case for the past several years) and [interestingly] a good number of them did not expand their staff very much if at all during the insane oil-fueled boom we've just come through here (Alberta). Evidently memories of the last bust are still in the minds of the more experienced business operators.

[algerwetmore]

Re: Construction riches to rags

Well. it has always been the case that 10% of the RE salesman earn 90% of the money, the rest are part-timers supplementing their regular incomes.
But, I think what you will see now is that broker/owners of real estate companies will shed sales force, and start showing more homes themselves, or keep it in the family-sons/daughters-nieces/nephews.

[LargoWinch]

Re: Construction riches to rags

Still no slowdown in Toronto, ON.

Soon the median Toronto house will be 2x the median California house...

Hmmm sun and nice looking people vs cold and funny-colored money: now that is though!

[flintlock]

Re: Construction riches to rags

I went through 3 boom and busts when I ran a contracting business. Each had its own peculiarities but one constant was the surge in newbies that occurred in the latter half of the good times. That's when many experienced tradesmen decided the time was right to 'step out' and make a go of it. They generally mucked things up for the old timers, under bidding, etc but their comeuppance came when the bad times arrived. There is a bumper harvest of these hard working, business deficient sole proprietors- now dazed and desperate- in the unfolding calamity.

I'm a contractor and I noticed the same thing. A huge surge in the last few years of unqualified people going into business. I'd venture to say 70-80% of remodeling work done in Atlanta is substandard. You can break this down into 1/3 completely incompetent, 1/3 well meaning but poor businessmen, and the other 1/3 just flat out criminals.