Home Improvement Gets a Quick Fix

MAY HOUSING METRICS WERE LARGELY consistent with our view that the market although still weak, is stabilizing. While ongoing home-price declines and the recent uptick in mortgage rates are factors to watch, the improving turnover backdrop should help pave the way for improving comparable-store sales profiles at Home Depot (ticker: HD) and Lowe's (LOW) as we move into fiscal 2010. We continue to rate both stocks at Outperform.

New single-family home sales came in at 342,000 units (seasonally adjusted annul rate), below consensus expectations of 360,000. New home sales declined 0.6% from April's downwardly revised estimate of 344,000 (from 352,000) and were 32.8% below year-ago levels. May's median price of $221,600 increased 4.2% sequentially, but fell 3.4% year over year; however, we caution reading too much into the number as these price data are volatile and do not adjust well for sales mix.

While the continued reduction in new home inventory (units down 2.3% from April and 35.5% below May 2008 levels) is a clear positive, months of supply still remain very elevated at 10.2 (versus 10.4 in April).

With today's new home sales release and yesterday's existing home sales data, we now have a more complete snapshot of housing activity during May. Total turnover (new and existing single-family home sales, seasonally adjusted) was 4.59 million units, a 1.7% increase from April and 4.9% above January 2009's trough level of 4.38 million.

Compared to a year ago, turnover declined 6.1%, a modest sequential improvement from April's 6.6% decline and still much improved versus the February 2008 trough decline of 24.5%. We remain encouraged by the continued stabilization in this key housing metric, though recognize that the recent uptick in mortgage rates will likely cool some activity levels near term.

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State licensing board answers home-improvement questions

The California Contractors State License Board (CSLB) answers questions on hiring and managing building contractors.
Q: My son’s scouting troop was trying to find a way to raise money for their next camping trip. One of the boys came up with the marvelous idea of selling a graffiti removal service to different business and property owners. It would improve the community and give the troop a way to earn money. My brother said this qualifies as contracting and they would need a state license. Tell me this isn’t true?
A: Anyone, Boy Scout or not, who does contracting work valued at $500 or more needs to be licensed by the Contractors State License Board. Painting walls or the sides of buildings is considered contracting work. If the jobs are under $500, they might get by with city or county permits.
Check with your planning or community development department to identify your local regulations. If the troop is trying to generate long-term contracts with clients, it could explore some other options. For instance, you might find a licensed contractor willing to oversee their work. However, workers’ compensation and liability insurance should be strong considerations when thinking about any kind of contracting work.
Q: A couple of men dressed in some kind of uniforms knocked on my door offering a free fire safety inspection. They made it sound like they were from the city. But, I didn’t believe it and wouldn’t let them in. That started me thinking that maybe I should have called someone to report them. What’s your take on this? Do the police and fire departments ever do random inspections like this?
A: You were absolutely right not to let those men into your house. Be suspicious of anyone who knocks on your door without an invitation and tries to offer a service. There are many scams that begin with the offer of an “inspection.” The offer could be to examine an air-conditioning system or roof, and they sometimes use scare tactics about fire or physical safety. It doesn’t hurt to ask for an ID and a business card. Then call the nonemergency phone number of your local police department to pass along the information. You can also access a form to report unlicensed contracting activity to the CSLB’s Statewide Investigative Fraud Team (SWIFT) at www.cslb.ca.gov.
Q: Our bathroom is badly in need of repairs and updating. Our original plan was to hire a general contractor to oversee the project. But, my employer cut my hours because of the economy and now there is not enough money. My husband and I are taking classes at the local building supply store and plan to do the work ourselves. Is there anything we should keep in mind while doing the job?
A: A major project like a bathroom remodel should not be taken lightly. You most likely will need to get permits from the planning department and pass inspections. You, as an “owner-builder,” will be responsible for the integrity of the work and pulling the necessary permits. Remodeling work done without permits can cloud any attempt to sell the property in the future.
Sometimes the do-it-yourself approach ends up costing more money when you need to call in a professional to fix something that didn’t work out. You might consider doing your bathroom in phases. Or, a licensed contractor may be able to come up with financial arrangements that work better for your project and your budget. Ask friends and family if they can recommend a licensed contractor who can work with you.

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