The Brunt of Foreclosures Crisis

June 9th, 2008 | Tags: Foreclosure Crisis

The sale of new houses has fallen by 40% at the least, in Los Angeles from what it was three years ago. This is making contractors feel the brunt of foreclosure crisis. Robert Lindsay of Signature Drywall, looks at his bank account and can see the impact of it on his business. Signature Drywall has been losing money each month. The work of the company is to install drywalls in new houses and apartments in San Francisco and Sacramento. In 2005 the company had showed $30 million in sales. In 2007 it was lower by more than half. This year he considers himself to be lucky if he can rake in $8 million.

It is a kind of slow death for him and others like him in the same boat. Residential construction figures decreased in April for the 26th running month, according to Commerce Department. The development and housing industry is not something that stands in isolation. Its fate is linked with thousands of other ancillary works all engaged in construction. When the giants sneeze everybody down the ladder catches a cold. This snowballing effect is pushing the country on the verge of recession. California, Nevada, Florida and Arizona had seen frenetic housing activity during the last few years – had become dependent on it for its prosperity.

These states count among the 11 that have already dived into recession, according to Moody’s Economy.com. In comparison to other industries the housing sector is more important and pivotal to the general economy. One job lost here translates into losing more than one in another elsewhere. It is like a game of ninepins. When construction screeches to a halt then the surrounding eateries, groceries and retail shops all grind to a stop. The pain spreads.

During the housing boom Guillermo Hermosillo sold 30 vehicles in a month. Most of these were trucks purchased by the construction workers with bulging pockets while helping to erect new houses in and around Calexico, California. Then the bubble burst. The houses were knocked down by foreclosures one by one. The workers vanished. Guillermo’s sales fell. Who will buy?

Housing embraces all kinds of work from plumbing, electrification, lumbering, masonry to accounting. The subcontractors were the worst hit. Payrolls were slashed after laying off 80% of staff.

Permits for construction during the boom days, in September 2005 touched 2.3 million. It was a million more than April 2005. But all that is history.