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Re-bid woes

Sean M. Grady

Summing up the new-housing market’s biggest problem is simple.

“We need to lower housing prices,” said John Tolbert, division assistant vice president for luxury-home builder Toll Brothers in Reno.

Summing up the solution is just as simple: Lower the cost of building these homes. But putting that solution into effect has been anything but easy.

In order to lower their costs, developers have to convince their subcontractors and suppliers to reduce their costs in a downhill run of belt-tightening.

One of the defining examples of how things have changed since the market’s boom days is the rise of re-bidding, the renegotiation of material and labor costs before homebuilders begin work on the next phase of a particular project.

Re-bidding can save a developer from hundreds of thousands to millions of dollars, depending on the size and style of its subdivisions.

Even though luxury-level builder Toll Brothers is in a different market niche from such mainstream single-family developers as Centex Homes, Lennar or Altmann-Ott Homes, it also has had to cut its overhead.

“I’ve seen a lot of participation from our subcontractors, though they’re not necessarily happy about it,” Tolbert said.

Aside from the simple need to keep in business, subcontractors and their suppliers have spent years developing working relationships with each other and the developers whose names go on each subdivision’s sale brochures, Tolbert said.

Going along with the re-bidding process maintains these relationships both during the down times and for when the market turns around again.

Of course, this process means buyers can get more house for their money.

At the other end of the price spectrum, Casoleil a condominium community going up near the Sparks Galleria shopping center in Spanish Springs has been trimming both costs and base prices for its second

construction phase.

“We reduced our costs during the re-bidding process enough so we could lower our prices by $20,000,” said Michael Yoelin, who is both the community’s sales broker and a partner in its development firm.

Not all prices will be coming down, though. For instance, wood products are set for an upcoming increase.

“For about the last year and a half, there has been an oversupply of all fiber-based building materials, such as lumber, structural panels, and engineered wood products,” said Buck Yeager, president and chief executive officer of Reno Lumber.

And as is the nature of market forces the low demand from the construction cutback combined with the glut of lumber supplies caused a drop in price.

How much of a drop? Data from Random Lengths a firm that monitors pricing and other factors in the forest-products industry and supplied by the National Association of Home Builders shows that framing lumber prices nationwide have hovered between $238 and $284 per 1,000 board feet since the start of the year.

In contrast, the 2005 low price for such lumber, which includes two-by-four-inch and two-by-six-inch boards, was $350 per 1,000 board feet, while the high price during the year was $426.

Unfortunately for builders, the oversupply is just about over, Yeager said.

“As the manufacturers have used up contracts for raw material they have been able to slow down production at, and in some times shut down permanently, some of their facilities in order to match the supply to the demand,” he said. “This has caused the pricing to level out and actually begin to rise to a level that the producers say is somewhat profitable to them.”

It can be hard to remember the good times.

“It’s a brutal market,” said Michael Ellis, general manager of Reno Truss, which supplies pre-made wall and roof framing elements to area builders.

Ellis, who has been with Reno Truss for 14 years, saw the company grow by 10 to 20 percent from the mid-1990s through 2004, then double its production capacity in 2005 to keep up with the demand.

These days, in order to keep the business alive, the company has lowered employees’ pay and cut back on vacations and benefits.

Even then, the owner has had to use his own money to pay the bills, Ellis said.

The silver lining in this cloud is that other markets have gone through such hard times and have come out

of them.

“It’s the first time I’ve experienced things on this level since the early 1980s, when I was back in California,” Ellis said.