Builders tighten tool belts amid slump

The bubble has burst.

For months, it seemed the Flathead Valley was immune from the housing problems plaguing other areas of the country. In other states, builders were out of work, the supply of houses on the market far exceeding demand. In the Flathead, construction continued, perhaps at a less-hectic pace than in years past, but continuing nonetheless.

Now, however, construction has slowed to the point where many builders are significantly tightening their tool belts. Builders across the spectrum, from those who deal primarily in affordable housing to those who cater to the vacation- and second-home market, are facing layoffs and readjusted sales goals for 2009.

"There has been a lot of conversation that we've lived in a little bit of a bubble here in the Flathead," said Bob Helder, president of the Flathead Building Association and co-owner of Robert W. Ross Building Contractor in Kalispell.

"I think that bubble has burst."

Building permits in the valley this year were at their lowest levels since 2001, Helder said.

City planning offices recorded 429 permits in 2008, down 25.8 percent from 2007. Of those, 195 building permits were for new residential buildings, including single-family houses, townhouses and apartment buildings - a 36.3 decrease from 2007.

The builders who are hurting most are those who built houses on speculation, Helder said.

"What we're seeing is that companies that moved here to build spec homes don't have the relationships [with clients and contractors], don't have the resources, don't have the networking," he said. "They're the ones who are struggling a great deal more."

Even with the slowdown, Ross Construction managed to have a decent year, Helder added. He attributes this largely to the company's 52-year history in the valley.

"Right now we're not having a huge year, but we're not having a small year," Helder said.

He declined to say how many houses the company sold in 2008 or how much they made. Most of Ross Construction's homes are in the $350,000 to $2 million range, Helder said.

Ron Terry Construction, which deals primarily in affordably housing, sold about 20 homes in 2008, compared to 40 in 2007, Merna Terry said.

The company also has lowered its prices, although they can't go much lower.

"There's a point where it gets to where you can't build them and make a profit continuing to build them," she said. "We're just building less."

For many builders, the slowdown has meant layoffs. Ross Construction trimmed its staff a year ago, Helder's sister-in-law and fellow co-owner Susan Dykhuizen said, from 12 employees to eight.

Ron Terry Construction has had to lay off two-thirds of its staff, Terry said. Over the last year and a half, the business has gone from 27 employees to nine.

Even builders at the highest end of the market have been affected. Paul McElroy, who owns Bigfork-based Montana Build with partner Colton Behr, said his company has had to lay off employees over the last couple of months.

For the most part, however, the vacation- and second-home market is doing well, McElroy said. Montana Build's highest-end clients - those building homes with $2 million or higher price tags - are continuing with construction as planned. Those with homes in the $500,000 to $1.5 million range are a little more hesitant.

"Clients that have substantial net worth are pulling the trigger," he said. "The middle ground is just hunkered down and waiting. We hear a lot of people saying hold, hold, hold."

Other would-be clients are holding off on building because of the uncertain economy.

"Because of all the national economy and all the layoffs, people are afraid to make purchases right now," Terry said. "I can't blame them if they're afraid they might lose their job."

But for those who are secure in their jobs, most agree this is an ideal time to build. Rates are low, loans are available and materials are less expensive than they've been in years.

"Right now if you want to build a new house, our pricing is coming in better than ever," Helder said. "It's a great time to build."

Typically, Ross Construction tells clients to expect to pay between $125 and $135 a square foot for a normal house. Recently, however, the company just bid a home with granite countertops, tile floors and other typically more expensive items; the bid came in at under $90 a square foot.

The price of lumber is at about a 10-year low, said Bill Schottelkorb, manager and co-owner of Western Building Centers. When the price of oil spiked, the cost of metal and PVC climbed, but now those items are much more reasonable, he said.

Moreover, there is an excess supply of labor. Builders come by Western Building Centers to leave their cards and ask if the staff has heard of any jobs.

"They're scrambling to try to keep busy," Schottelkorb said.

Western Building Centers also has been affected by the construction slowdown. Company-wide, sales are down about 20 percent this year, Schottelkorb said. He expects profits to be down about 50 percent at the end of the year.

The company has had to lay off employees and has cut remaining workers' hours to about four days a week, he said.

The construction climate reminds McElroy of when he first moved to Whitefish in 1993.

"There was no work at all in the valley," he said. "I'm actually seeing signs of that right now."

A few years ago, when a job came on the market, Montana Build would typically get two or three bidders from contractors, McElroy said. Recently, the company got 26 bids for a commercial job in Kalispell.

Montana Build has increased its commercial projects from about 20 percent of its overall market to 35 percent, he said. It also has taken on projects outside Northwest Montana, including as far east as Baker and west into Idaho. The company may expand into North Dakota in the future.

Expanding its commercial business and being willing to travel have helped keep the company busy, McElroy said.

"We really had to spread our wings," he said. "We would starve in the Flathead now."

The tight construction market ultimately will benefit the valley, McElroy said.

"I think it's great. It's a little bit of the correction we need," he said. "The market was getting too saturated with builders."

Many builders are holding their breath, waiting to see what the new year brings. Building is cyclical, and it's only a matter of time before more projects come along.

"On a positive note, this, too, shall pass," Dykhuizen said.

Helder agreed.

"We're really optimistic for the future," he said. "I think we're going to have some challenging times ahead of us, but if we're wise, we're going to make it through."

Construction in the Flathead will come back much sooner than the rest of the country, McElroy said.

"I think our market is going to be the least affected and quickest to recover out of the national market," he said.

That doesn't mean it will be easy, he cautioned.

"Sometimes you have to work harder," he said. "Now is one of those times."

Reporter Kristi Albertson may be reached at 758-4438 or by e-mail at kalbertson@dailyinterlake.com