As spending shrinks, businesses make do

October 29, 2007 

AY Rewinners

The poor economic state of the housing market indirectly hits other industries including the furniture business. This furniture store, Villagio in Salida, Calif., is going out of business and has hired furniture liquidator Zack Johnson, 23, of Dallas, to empty and close the store. Alison Yin/The Modesto Bee

ALISON YIN — Modesto Bee

Fewer people are calling the region's Handyman Connection for home repairs.

Boats are not selling as quickly at Bob's Marine in Modesto.

And the demand for real estate appraisals has fallen off.

For these businesses and many others, the dramatic real estate decline is cutting into their bottom line as people cut back on discretionary spending and companies slash expenses.

"It's affecting every type of business, across the board," said Sky Ucci, owner of Modesto Handyman Connection, the region's outlet for a nationwide chain of handyman service franchises.

Ucci said retail business owners of all kinds have told him they're hurting, and many attribute it to the Northern San Joaquin Valley's real estate slump.

Housing is tied to consumer spending in a number of ways. Someone buying or selling a home likely will use a real estate agent, mortgage lender, title company and appraiser.

New homeowners are more likely to spend money on pool construction, landscaping, furnishings and such.

If they've been in their homes for a while, they may undertake repairs or remodeling projects.

Economists have noted that during the housing boom, many people were refinancing their mortgages to pull out equity, then using it to buy cars, boats, home electronics and other "toys," even pay for vacations.

The slump hasn't spared big-name retailers. In an earnings report earlier this year, Home Depot attributed a drop in sales to the real estate slowdown, noting that builders, contractors and homeowners were buying fewer products.

A May report by the Congressional Budget Office suggested that consumer spending would slow nationwide if home prices dropped, which they did last month.

"Losses would also be larger if lower home prices had adverse effects on the volume of home improvements or on the finan- cial situation of heavily in- debted homeowners," the report stated, outlining a scenario many business owners believe is playing out in the valley.

Some are sticking it out

Businesses that saw the slowdown first, and perhaps felt it the most, are those directly tied to real estate.

Home appraiser Dan Epperson, of Epperson Appraisal Services, said he and his wife, a loan agent, are getting far fewer phone calls for their services.

"During the boom, I was so busy that I was having to turn away work. I was able to pick and choose," said Epperson, 49. "The slow turnover means that there are less sales, and that means less appraisals for me."

Epperson said he and his wife used to go out for a nice dinner a few times a week. Now they go once a month.

"I know other appraisers are dropping out of the industry," he said. "I'm one of the ones that's going to stick it out."

Other businesses are hopeful but said they don't know how long the slump will last.

Marla Giddings, who shoots virtual home tour photos in the valley for CirclePix, said she hopes 2008 will be better than 2007.

She said orders have slowed by nearly half from two years ago, so she's adjusted her schedule and pondered doing shoots for commercial buildings.

"The good side is I can do it all in one area on the same day," said Giddings, 49, who lives in Escalon. "But I'm having to pound the pavement."

Other business owners in real estate-related businesses have experienced a notable slump, too -- or worse.

In Turlock and elsewhere in the state in the past two years, there are stories of pool building contractors who went under, leaving scores of jobs unfinished.

Experts said those businesses prospered when real estate was hot but ran into problems when demand dropped.

Marcos Alanis of Direct Appliance in Modesto said sales to new homes are slow, but sales connected to remodeled homes are holding up.

"If we depended on new home construction, we'd be out of business," he said, adding that the company plans to diversify during the downturn and sell more products for the remodeling market.

A report released in October by Harvard University's Joint Center for Housing Studies sug- gested that remodeling activity nationwide would decline by 2.3 percent from 2006 to 2007.

The report said homeowners worried about falling prices and a sluggish economy would slow their spending, particularly on home improvement.

Many furniture stores already are experiencing tough times.

Salida's Villagio Furniture Gallery was in the midst of a going-out-of-business sale last month, which didn't surprise liquidator Zack Johnson, 23.

As he sold off the store's in- ventory, Johnson, of Furniture Options in Dallas, said other furniture stores in cities around the country where the real estate bubble has burst are closing as well.

Fewer cars and boats sold

Car dealers are seeing slower sales, too. Over the years, they said, their sales have become closely tied to the housing market because people often use their home equity to buy cars. That they can deduct the interest on such loans -- not an option with most other auto financing options -- adds to the attraction of a purchase.

The California Motor Car Dealers Association noted recently that new vehicle registrations had declined by more than 9 percent in the first three quarters of 2007, citing, in part, too much consumer debt and the housing decline.

Those factors are affecting purchases of big-ticket "toys" such as motorcycles and boats.

Bill Donaleski, owner of Bob's Marine in Modesto, said people hold on to their wallets when they read that times are tough in real estate.

"Always in this business, any kind of toy item, when the housing market goes flat, we go flat," he said. "When things get tight, people take care of necessities first."

As sales slumped, Donaleski said, he stocked 80 to 90 boats in his showroom, down from 140 in an upbeat sales year. He was able to keep his staff, but acknowledged 2008 probably will be another slow year.

"It's like the slowdown last time, but the last eight years have been very good," he said.

Boom times will return

Consumers are anxious about the state of the overall economy as well, business owners said, making them more cautious even if their own financial situation is stable.

"There are a lot of people sitting on the fence right now because of the fear factor," said Bob Ivan, a mortgage broker with Miracle One Mortgage in Modesto.

He said he'll close 75 to 100 loans this year, about half of what he did during the boom.

"I think it's just fear," said Ucci, of Modesto Handyman Connection. "People look at the war, they see the money we're spending and their own home prices, and they get concerned."

Still, business owners retain some optimism, saying that just as the boom ended, so will the bust, because houses, over time, almost always gain value.

Epperson said the exodus of appraisers will help his business when demand returns.

Bee staff writer Ben van der Meer can be reached at bvandermeer@modbee.com or 578-2331.

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