All of a sudden, it just fell off a cliff

There was an interesting article in the San Francisco Chronicle on Sunday called Fairfield balances on the edge as housing prices plunge.

The article mentions Fairfield California specifically, but it is really about hundreds of similar towns across the nation facing the same problems. Let's tune in.

If you want to see how the housing bust is affecting business in the Bay Area, there's no better place to look than Fairfield.

Housing in this bustling Solano County city is in an outright depression. Home prices are plummeting, buyers are running for cover and, in September and October, not a single home building permit was issued, the first time that's happened in the memory of city officials.

"People still seem to be employed. There's still a lot going on," said Stu Reid, owner of the home remodeling business Kitchen Tune-Up. "While people may be talking more cautiously, they're still going out to dinner, still playing golf. You still see long lines at Starbucks."

That's right now. The question on everybody's mind is how long can the city's economy stay healthy with housing in tatters. Fairfield, it seems, is a city on the knife's edge.

My Comment: Fairfield is over the edge. They just do not realize it yet. This is a Wile Coyote moment.

New-car sales at Thomason Autogroup, which owns nine franchises in Fairfield, have edged down about 5 percent in the past year, due in part to homeowners who can no longer easily get home-equity loans.

"Our customers appear to have less disposable cash," said Thomason president Pancho Redfern.

Fairfield plumbing and engineering contractor Amos & Andrews has already seen the residential portion of its business plunge about 75 percent. Now it's steeling itself for a slump in the commercial and industrial side of its business.

"There's usually a slowdown in that market segment six to nine months after housing," said company Vice President Gary Andrews. "We would anticipate the downturn mid-year next year."

Members of the International Brotherhood of Electrical Workers are fully employed on such projects, even though the union had to cut back its residential apprenticeship program to six slots from 15. But union leaders worry the strength of commercial construction won't last.

"If the industrial portion goes, then we're in real trouble," said Lou Franchimon, business manager of Napa-Solano Building Trades Council.

My Comment: Bingo. The false hope that commercial real estate will be the savior to this mess is now being shattered. Commercial follows residential with a lag. Industrial follows that. Housing turned lower two years ago. Commercial will easily fall for two years now and more likely four.

See Commercial Real Estate Heads South and Commercial Real Estate Abyss for more on commercial real estate woes.

At Amos & Andrews, "all of a sudden, it just fell off a cliff," Andrews said of the company's work on residential projects.

My comment: Like this?

At flooring contractor Campbell's Carpets, sales are down 39 percent despite aggressive discounting. "We're as low as we can go," said manager Jose Vera. "We can't go any lower."

My comment: Then you go under. It's as simple as that. By the way, I take no glee in this even if people were forewarned.

Redfern at Thomason Autogroup said he expects sales to continue slipping for the next six to eight months. But, like many area businesspeople, he's convinced Fairfield will pull through tough times and that its long-term prospects are bright.

"You would think there would be more depression and despair," he said, noting that his own house has lost about $140,000 in appraised value in a year.

"But in this market here, there's still some strange optimism. People haven't thrown in the towel. ... People are still moving into this market. We remain optimistic."

My Comment: We cannot possibly bottom as long as people remain optimistic. A necessary but not sufficient ingredient of a lasting bottom is despair.

This article is not really about Fairfield although it may seem like it. There are hundreds of Fairfields all across the country going through the same thing.

My advice over the last two years has not changed. Raise cash, be prepared for a layoff, and cut back on needless purchases. Unemployment has bottomed with only one way to go and that way is up. Be prepared for it.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com
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