The Phoenix market, once a bastion of fast growth, is one of the hardest-hit areas in the current economic slump, with builders reporting 60 percent to 70 percent drops in new-pool construction since 2006.
“It’s getting weaker by the day,” said Tom Nichols, president of Tom Nichols Excavating Inc. in Phoenix.
For nearly 20 years, the Valley of the Sun sat high on the list of fastest-growing metropolitan areas in the United States. But the city that rode the housing market during high tide now is caught in a severe undertow. With more than four times the home inventory as in August 2005, new building has nearly ceased. And the area is suffering its share of loan defaults.
This leaves pool sales at a near standstill. “We used to dig 20 pools a day. Now we’re doing maybe three,” Nichols said.
Higher-end firms appear to be feeling the pinch less, for now. Renovation work is providing some relief, but it, too, has begun to slow.
At its peak in 2005, the Phoenix area saw 23,749 pool permits issued. Last year, those figures dropped 47 percent to 12,525, according to Rider Permit Service in Carefree, Ariz. (Those numbers have a margin of error of plus or minus 5 percent, according to company officials.)
The slowdown began in 2006, when 19,102 permits were issued, with 14,674 pulled by the end of the 36th week. This year, that number sits at 5,166.
“[Even] if you’re Zig Ziglar trying to sell pools, this market is tough,” said Ron Ostlund, president of Riviera Pools in Phoenix.
In an effort to streamline, companies have cut expenses wherever possible, sometimes trimming staffs by half or more.
Yet despite those measures, many have had to close their doors. Estimates vary regarding the percentage of companies that have gone under, but some believe approximately 20 percent have left the industry. Others say it’s closer to 50 percent, if part-time builders are counted.
The momentum of pool-firm closures seems to be gaining speed. In the last week of August and first week of September, word had circulated that four companies went out of business.
This includes White-Water Pools, the largest to close so far. It ceased operation in mid-September, according to sources close to the firm. In 2005, the Pool & Spa News Top 50 company pulled permits for about 650 pools, according to Rider, and reported a total gross revenue of $21,313,987. Last year, the company sold about 275 pools. The firm changed ownership in 2007, and had pulled permits just over 60 pools in 2008.
Part of the problem is financing. Even when a sale is made, builders can’t relax because often customers are unable to get a loan.
“Between the devaluation of the houses and the credit crunch, it’s kind of like the perfect storm,” said loan processing agent Mike Hermann, president of the Finance Office in Phoenix.
Hermann estimates that 30 percent to 40 percent of homeowners who sign on the dotted line are refused financing.
In response, several builders are banding together to seek alternative options. “We’re looking through every nook and cranny, at community banks, national banks — anybody who will give add-back for the pool,” said Steve Ast, vice president of sales and marketing at Shasta Pools and Spas, a Pool & Spa News Top Builder based in Phoenix.
“I think it’s actually brought builders together. You’re seeing the good-quality builders really working together to promote a more healthy industry.”
An idea that Hermann hatched is currently receiving the most serious consideration. He wants to see qualified area builders collectively self-insure their customers’ loans. Several have expressed interest, and Hermann is preparing a presentation for local and regional lenders in hopes that at least one will agree to provide the loans. He estimates that each builder would have to supply the equivalent of two pools’ worth of profit. Given the backlog of projects awaiting financing, he said, the program should pay for itself quickly.
As if closures and the credit crunch weren’t enough, the current market climate also has caused the rumor mill to buzz. False reports regarding many large Phoenix builders have circulated across the country.
“People call up and say, ‘I heard you closed your warehouse,’” said Ostlund, whose firm has shuttered nine of its 15 locations. “I tell them, ‘Well, not yet we haven’t.’” There were even rumors that Ostlund had committed suicide.
Many don’t expect business to pick up until 2010 and, in the meantime, companies continue to hold onto their seats and find creative ways to trim overhead.
“This has to get better in 18 months,” Ostlund said, “or there are going to be some very, very dramatic changes in who’s in the pool business in Arizona.”