Homebuilders shift to remodeling in dwindling economy

Rich Riemersma is walking up the driveway of a grey, two-story home in Inver Grove Heights. Snow crunches underfoot and clings to the spruce trees all around. The neighborhood feels rustic, like a weekend getaway spot. A really, really nice weekend getaway spot.

Riemersma's company, Imperial Homes, has built some fancy houses here, including several homes over the $1 million price tag.

But this particular house is not one Riemersma built. He remodeled it, by adding bedrooms above its vaulted roof. Homebuilding jobs dried up for him last year and Riemersma's company started doing a lot more remodeling. He figured it could keep them working until housing demand returns.

"So that we can gear more into the new construction again and maybe have a part of the company that still does remodeling," Riemersma said.

A recent survey by a national trade organization found that about 40 percent of home builders polled have moved into residential remodeling.

But it's not a life saver.

Last year, Rich Riemersma's company did not turn a profit, even with the remodeling work. And, he doesn't have any remodeling gigs immediately lined up.

"What I'm seeing right now is there's no sense of urgency out there," he said.

In some cases, customers are choosing to do the remodeling work themsleves to save money. That was even true at this Inver Grove Heights job, which Riemersma finished last fall. The homeowner, Brad Hopke, only hired Riemersma for part of the work. Hopke said he figured he could do much of it himself.

"[It's] a function of the economy, and I'm just cheap," Hopke said.

Hopke's kidding a bit, but the bad economy is putting a damper on remodeling business.

Blame job losses, shrinking stock portfolios, and tighter access to financing. Kermit Baker is director of the Remodeling Futures Program at Harvard's Joint Center for Housing Studies. Baker said remodeling activity did stay robust longer than homebuilding. Still, remodeling has seen steady declines since the middle of 2007.

"It'll probably go a little bit further but certainly not nearly as far down as as homebuilding went," Baker said.

Baker said that's partly because builders put up houses even when they didn't have a buyer. You can't do that with remodeling.

You can see the difference between the two industries in Minnesota's job numbers. Home building employment is down a whopping 31 percent from its peak in 2005. Residential remodeling jobs have dropped, too, but to a much lesser extent, 11 percent since their peak in 2006.

In the end, though, Kermit Baker said some of the same consumer spending patterns drove both homebuilding and remodeling to unsustainable highs.

"We had this cycle that kept feeding on itself; growing home prices, pulling equity out, pushing it back in the home, which was accelerating prices again, and causing more and more home improvement activity," Baker said.

That cycle benefited Keith Holtan, who runs Holtan Kitchens and Remodeling in Minneapolis. He's been a remodeler 32 years and he says business is dwindling, even as homebuilders try to carve some out for themselves.

On this day, he's installing some window handles in a Minneapolis kitchen. It's work typically done by a more junior employee. But Holtan recently had to lay a few people off.

"I haven't had my tools out for ten years. So this is a little change," Holtan said.

Holtan's business fell by about 35 percent between 2007 and 2008, and he expects it to drop even more this year. If business stays slow, Holtan could shut down his company. He knows of four other midsize remodelers who are going that route. But at age 59, Holtan's not quite ready for retirement and he said signs of dilapidation around area homes give him hope for future business.

"I know that somewhere there's a dishwasher that's broken this week, or a door that's broken off an oven, and it makes me feel cheerful when I see that," Holtan said.

Holtan hopes that by the middle of the year there will be enough pent up demand to make his remodeling company busy again.

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