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Lenny Ignelzi, Associated Press
Greg Colgate, president of the California Tile Co. in San Diego, sits in his warehouse. Colgate has had to lay off workers and now has only 25 employees, down from a high of 70 workers in 2005.

LOS ANGELES — Robert Lindsey was not surprised by new data last week that showed new home sales have 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 some $30 million in sales. Last year, sales were less than half that, and this year, Lindsey hopes he can make $8 million.

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

A lot of his competitors feel that way. On Monday, 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 — which are all heavily dependent on the housing sector — are among the 11 states that have already fallen into recession, according to Moody's Economy.com.

"The collateral damage from a lost construction job is greater than in many other industries," said Mark Zandi, chief economist at Economy.com. "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 stories 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 new 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 of what they were last year.

Head hunters say workers have fled California for Utah, Texas and other states where there's a better chance to get work in homebuilding.

But according to the University of Utah's Bureau of Business and Research, Utah is in the middle of its worst homebuilding stretch in almost 30 years.

Residential construction in Utah is falling at a record-breaking pace, "as conditions have moved from an orderly correction to a serious contraction," said the bureau report that was released last month. The number of building permits for homes, twin homes condominiums and apartments declined 58.2 percent in the first quarter of 2008, compared with the same period last year.

One measure of how much the national homebuilding industry has contracted since the high-flying days of the housing run-up: Construction permits for new homes peaked at about 2.3 million in September 2005 — about 1 million more new units than were reported in April.

Everything that goes into building a home — from plumbing fixtures, to steel, lumber and masonry, to 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.

They have seen business plummet as homebuilders 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.

In California alone, subcontractors have laid off, on average, up to 80 percent of their staff, according to the California Professional Association of Specialty Contractors in Sacramento, which mostly represents firms engaged in new home construction projects. Kelly Bice, 48, had been working as vice president of construction for San Diego real-estate developer Keystone Communities Inc. for more than seven years before he lost his job in February, when the company filed for bankruptcy. Bice, who lives in Murrieta, east of Los Angeles, was pulling in around $136,000 a year with bonuses. Now he's scraping by on $500 a week as a consultant on a home-renovation project.

"I'm living on my savings," he said. "That's just buying the groceries."

Nationwide, the number of vacant homes is at a record high and 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.

In Miami, where there is more than 3 1/2 year supply of existing homes on the market, general contracting firm O'Steen & Co., also has sliced its payroll.

The company, which handles framing, concrete installation and virtually all other aspects of residential and commercial construction, employs about 40 people, but like similar firms, its number of hires can vary, depending on how many projects the company has going.

"Under normal circumstances, it should be 200," said owner L. Raymond O'Steen. "From a year ago, I would say the volume of business is probably off 60 percent."

Many trade contractors in the hardest-hit areas say they're struggling to stay in business and hold on to their best talent, however long it takes to ride out the downturn.

Greg Colgate, president of California Tile Co., in San Diego, started laying off workers last year and now his firm has about 25 employees, down from a peak of about 70 in 2005.

He estimates he'll do about 20 percent of the residential units his company did last year, but has managed to drum up some commercial construction work.

"We're just struggling to not have to cut any deeper this year," he said.