Chris Morello, 33, worked nonstop during 2006 and 2007 as a remodeling contractor in the San Jose, Calif., area. His project pipeline was healthy as 2008 dawned: He’d taken on a $150,000 job revamping a kitchen and two bathrooms for one homeowner and a separate $85,000 project. The gigs represented six months’ income.

Fast forward to May, though, and Morello says both projects fell through — one homeowner suffered a lost job and one got cold feet. Morello is essentially unemployed — and making postings to contractor chat boards saying he needs work. Instead of leading a crew through $235,000 worth of projects, he worked solo on handyman gigs — repairing fences and installing insulation.

“The past six months have really dropped off. People are putting projects on hold,” he says. “For me, it means no work.”

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In the case of the curtailed $85,000 project, Morello may end up getting the work after all. But the homeowner now wants to renegotiate pricing — at a time when gas prices and Morello’s construction material costs are both rising. He says he’s recently lost a few bids to unlicensed contractors pitching lowball rates just to get gigs.

“Something weird is going on out there,” he says.

Bouncing back ... in 2012
Morello’s right. The remodeling industry responds to the broader real estate and housing markets, and the downturn in the housing industry has dragged down the remodeling sector with it. Last week two economists said business in the remodeling sector likely will remain slow at least until 2009.

David Seiders, chief economist for the National Association of Home Builders, estimates the remodeling business will fall 7 percent in 2008, coming on the heels of a 4 percent decline in 2007. A slight improvement is expected next year, but the market won’t return to the peak levels of 2006 until 2012, he estimated.

“We’re clearly in an economic slowdown,” Seiders said.

The NAHB's remodeling market index, tracked quarterly, indicates that remodeling professionals expect continued weakness this quarter.

“The downward trend in the expectations is particularly striking,” he said.

As Morello learned, there are a variety of factors at play. Sinking or stagnant home values in many markets paired with tougher financing criteria reduce homeowners’ motivation to get work done in some markets, Seiders said. Sure, homeowners will do routine maintenance and repair work — mending or upgrading crucial home features like windows — but there will be fewer blowout kitchen remodels.

Location, location, location
Of course, as with all matters real estate, some locales are hit harder than others. Kermit Baker, senior research fellow at Harvard University’s Joint Center for Housing Studies, who oversees remodeling research for the organization, sees tremendous variation among cities. That’s because remodeling trends track local market data on home sales levels and home prices.

Because sellers often remodel before putting a home on the market, and buyers remodel to customize their new property, home sales activity is one indicator of upcoming demand for remodels. Because those who remodel often use equity to finance the work, home price gains or at least stability help boost remodeling activity. If home values are sliding, both borrowing potential and return-on-investment potential from do, too.

CONTINUED : “This is what I do”

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