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| El Paso-owned and proud |
Jul. 25 - Jul. 31
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How builders, subcontractors adjust to slow home sales
By Mike Mrkvicka |
 Few businessmen in El Paso are in a better position to watch the local economy play out in 2008 than Randy Bowling, president of Tropicana Homes.
As researchers with the Federal Reserve Bank in Dallas see it, this year will be "something of a tug-of-war" in El Paso.
Pulling in the downside direction is the slowing national economy, which has already retarded growth in the local manufacturing and housing sectors. Tugging toward the upside, though, is the extensive construction at Fort Bliss to accommodate a tripling in the number of troops to be stationed there.
"Infrastructure expansion at Fort Bliss and the arrival of another 2,500 jobs on the base should provide enough momentum for a better 2008 locally," fed researchers wrote recently.
Tugged from both sides
Bowling is already familiar with the downside tug – the local impact of the national housing downturn. Tropicana sales last year were significantly lower than during the boom years of 2005 and 2006.
"Our company is set up to close 200 to 250 new houses a year. In 2006 we closed 400. That's a number we never planned for. In 2007, we closed 220 and the majority of those were sold at the beginning of the year. Our December sales were slow," Bowling said.
He attributes the local slowdown more to national headlines about the subprime mortgage crisis than anything on the El Paso scene.
"The headlines affected buyer psyche everywhere, including here. People put their money back in their pockets and wait for what seems like a better time to buy," he said.
But Bowling also sees the upward tug and feels Tropicana is well situated to address the off-base housing demands of new troops slated to arrive in El Paso.
Tropicana prices most of its homes between $100,000 and $150,000, an affordable range in a community with a median income of $36,000. He thinks this price range will attract military men and women.
"I don't think BRAC is going to change El Paso. I think BRAC is going to make El Paso more of what it already is. Blue collar. Working class." Bowling said.
Subcontractors hit hard
While confident Tropicana will bounce back, Bowling worries about subcontractors who work for him. Tropicana is selling completed houses, not building new ones.
"The subcontractors are really feeling the pinch," he said.
Jesus Ramos, who owns Ramos Tile, was working with Rassette Homes in Canutillo and Anthony.
"They used to keep us pretty busy. But then the economy went down and they're not building as much as they used to," Ramos said.
Two years ago, Ramos did $300,000 worth of business with Rassette. Last year, that dropped to $160,000, he said.
Bowling would like to think his subcontractors could diversify and get jobs on Fort Bliss "where there's a tremendous amount of military housing being built."
But many subcontractors are small operators who can't afford the insurance or bonding required by the federal government. Ramos considered and rejected going after federal work.
"They've invited me to bid but there's an awful lot of paperwork and a lot of red tape," he said.
Instead, Ramos is taking jobs with commercial builders, working for Crestline Building Corp. on apartment buildings and hotels in New Mexico.
Carlos Ornelas, president of the El Paso chapter of Southwest Specialty Contractors Association, says many subcontractors are now "coming to the commercial side."
The building slowdown in El Paso has been most significant on the Westside. In 2006 and 2007, more upscale homes in the $300,000-plus-range were built there than in the previous 20 years, Bowling estimates, many with subprime mortgages.
"Lot prices doubled. Housing prices increased 50 percent. People were getting into $500,000 homes with nothing down atsix or seven percent interest." He said.
But Tropicana stayed focused on building affordable, conservatively financed housing. "FHA and VA are still our bread and butter," he said.
As a result, Tropicana anticipates no problem surviving this downturn. "Our bottom is not what the bottom is in California. We are back to where we were before the boom of 2005-2006," Bowling said.
Already there are signs of the market returning to normal.
"El Paso is an interest-rate predicated market. And interest rates are historically low. On Wednesday, they were 5.5 percent," he said.
And it looks like buyers are beginning to tune out the subprime mortgage headlines and tune into the low cost of money.
"We sold four houses in December. We sold 30 in January. If you're going to borrow money and you're not borrowing it a 5.5 percent, you're losing out," Bowling said.
Bowling expects to close 200 homes this year, with profit margins returning to what they were before the boom.
"I think the homebuilders in town who produce the majority of homes are in the same position we are: Classic American, Desert View, Saratoga," Bowling said.
The rebate factor
If Bowling is bullish about the future of homebuilding in El Paso, it's not just because of the Fort Bliss expansion.
He's enthusiastic about the proposed economic stimulus plan that would give most citizens a tax rebate of several hundred dollars.
He said that could spur affordable-housing sales in El Paso.
"In El Paso, $500 or $600 can be the difference in having or not having a down payment. Our best sales season is February, March and April, and that's because people get their tax money back. If they get an additional check, that could be a positive factor for affordable housing," Bowling said.
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