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The housing bust pummels builders

"We're literally losing money every month," the general manager of one company says.

LOS ANGELES - Robert Lindsey was not surprised by new data last week that showed new-home sales had fallen more than 40 percent from their peak almost three years ago. He can tell from his company's bank account.

"We're literally losing money every month," said Lindsey, general manager of Signature Drywall Inc., in Sacramento, which installs drywall in new homes and apartments in the Sacramento and San Francisco areas.

In 2005, the firm raked in $30 million in sales. Last year, sales were less than half that, and this year Lindsey hopes they can hit $8 million.

"It's kind of like bleeding to death," he said.

A lot of his competitors feel that way. Yesterday, the Commerce Department said residential construction spending fell in April for the 26th month in a row.

The housing industry is not monolithic. Yes, there are major players, but for every mega-developer there are hundreds, if not thousands, of smaller companies engaged in building houses. And when those companies are hurting, the pain - in the form of job losses and weak sales - spreads across an economy teetering on the edge of recession. California, Florida, Arizona and Nevada, all of which depend heavily on the housing sector, are among the 11 states that already have fallen into recession, according to Moody's, of West Chester, Pa.

"The collateral damage from a lost construction job is greater than in many other industries," said Mark Zandi, chief economist at "For every job lost in construction, you generally lose a little over one more job elsewhere in the economy."

Like falling dominoes, when construction stops, the surrounding restaurants, grocery stores and other businesses get hit.

Guillermo Hermosillo's car dealership in Calexico, Calif., sold as many as 30 vehicles a month during the real-estate boom. Many of them were pickup trucks bought by construction workers flush with cash from helping to erect homes around the city, east of San Diego along the U.S.-Mexico border.

"Then the housing [market] crashed and everybody's losing their homes. These guys are left without jobs. You don't see them anymore," said Hermosillo, whose sales are half what they were last year.

One measure of how much the home-building industry has contracted since the high-flying days of the housing boom: Construction permits for new homes peaked at about 2.3 million in September 2005 - about one million more new units than were reported in April.

Everything that goes into building a home - plumbing fixtures, steel, lumber, masonry, the transportation needed to move construction materials, and the accounting and other financial services involved in selling the home - is tied to an industry that can suffer job losses when housing construction slows.

Among the hardest hit are residential trade subcontractors - firms that handle everything from framing and drywall to painting and electrical work.

They have seen business plummet as builders scaled back construction. Many subcontractors have slashed payrolls. Some are trying to transition into commercial construction, only to be rebuffed or forced to lower bids dramatically to gain entry, further squeezing the market for established players.

Nationwide, the number of vacant homes is at a record high, and it is expected to rise for the rest of the year as foreclosures add to the glut of unsold properties.

The slowing economy, coupled with rising gas and food prices, has dimmed the prospect of a pickup in sales this year. And that means potentially less work down the road for subcontractors and the trade workers they employ.