LAST YEAR, BEAZER HOMES USA's Atlanta division increased its closings by about 40 percent to 697 units for its fiscal year, which ended Sept. 30. That performance vaulted the company into the ranks of the market's top 10 builders. But in Atlanta, where those elite few control just 19 percent of the market, it's tough to gain traction. Beazer “kicked and scratched” for every one of its closings, recalls division president Lou Steffens, who adds that “there's virtually no employment growth here, and jobs that are being created are low-paying.”
Nonfarm employment in Atlanta's metropolitan area, as tracked by the Bureau of Labor Statistics (BLS), grew by a paltry 1.2 percent in 2004. But a different job picture has been emerging in what Andy Oxley, D.R. Horton's assistant division president, calls Atlanta's “third tier,” those counties 50 or more miles from the city's downtown. To the north, employment in Cherokee County rose 4 percent in June 2004 (the latest month for which BLS estimates were available) over the same month the year before. During that period, employment was up 8.3 percent in Forsyth County and 7 percent in Paulding County, on Atlanta's western ridge.
The availability of jobs has long been a driving force behind where homes get built and how much they sell for near America's metropolises. And more jobs are gravitating to the periphery of those markets, as soaring home prices, land-use restrictions, and traffic congestion are pushing businesses, buyers, and builders well beyond the geographic boundaries that have traditionally defined at least three major home building cities—Atlanta, Phoenix, and Washington—to outlying frontiers.
Like home buyers in those markets, it seems everyone's looking farther away for the right move. Make no mistake: The competitive landscape in the major metro markets throughout the country is getting crowded, as shown in this year's Local Leaders data, an analysis of the nation's top 75 housing markets. As national builders muscle deeper into the top 50 markets, each of which produced more than 7,000 permits in 2004, big local players are scurrying to maintain their volume. And in their quest to build market share, big builders are pushing the suburban fringe out farther and farther.
“ ‘Fringe' isn't a derogatory term, and we're looking for that next ring around the moon,” says Tim Bates, president of Hovnanian Enterprises' Virginia north division, which expects to expand into West Virginia soon. Amarket's center isn't necessarily moored to the business district of its largest city—not when someone living in Maricopa, Ariz., a suddenly hot home building town 40 miles south of Phoenix, can commute less than half an hour to work at Intel in Chandler. Maricopa is located in Pinal County, which accounted for 17 percent of the 60,872 new homes sold in Phoenix in 2004, versus 10 percent two years earlier, according to The Phoenix Housing Market Letter.
MAPPING IT OUTSteffens is convinced there are limits to how far outside of Atlanta's core buyers are willing to live. Last year, his division hired a three-person team to develop mid- and high-rise town-homes, and Beazer plans to build more of these closer to the city.
Other builders, though, seem headed in the opposite direction. In D.C., several builders have been “following transportation corridors north and west,” says Lennar Corp. area president Joe Walsh. The Centex Corp. recently started a community, located across the street from a station on the Metro line, the area's subway system, in Silver Spring, Md., that will offer 158 condominiums in 12-story buildings on half an acre of land. Pulte Homes is building 2,250 condos and townhomes on 56 acres near the Metro in Vienna, Va. “If you put a pin on a map in eastern Loudoun [County, Va.,] near Dulles Airport, and then look at what would be an hour's commute, that puts you into West Virginia,” says Cory De-Spain, president of Toll Brothers' division in Dulles, Va. Dan Ryan Builders, one of the pioneers beyond D.C.'s traditional edges, plans to survey buyers about where they work to guide its future growth, says vice president of sales and marketing Betsy Hudson.
Market borders are elastic for a simple reason: Proximity to a city jacks home prices sky-high. When WCI Communities acquired Reston, Va.–based Renaissance Housing Corp. in February, its president, Jerry Starkey, enthusiastically cited the 86 percent surge in the Washington market's new-home prices over the past five years.
Phoenix, which this year leapfrogged Atlanta for the first time to claim the top market title, may be considered a “price alternative” to California or Las Vegas, according to Pulte area president John Chadwick, but the median new-home price there jumped 28 percent to $210,855 in February 2005 from $164,474 in February 2003, according to The Phoenix Housing Market Letter.
In Atlanta, where small builders—which constitute most of the area's home building companies—continue to compete on price, median home prices rose just 2.9 percent last year. But some larger builders, including John Wieland Homes and Neighborhoods, have bucked that trend. Wieland's median prices have increased $50,000 to $60,000 over the past two years, says CEO Terry Russell, a 14.3 percent increase.
“You drive till you qualify,” Jim Williams, executive director of the Northern Virginia HBA in Chantilly, observes about buyers' migratory patterns. And building in these distant outposts is sometimes the only way builders can offer affordable options to buyers, adds Ronnie Salameh, Centex's division manager for D.C. and Maryland's suburbs.
STAYING PUTBy the same token, builders continue to explore infill opportunities across all price ranges. Last year, Wieland opened One Ivy Walk, a mixed-use community in Vinings, Ga., less than a mile outside of Atlanta's I-285 perimeter. “We're looking to move back into the city with smaller, more-upscale projects of 24 to 26 units that would sell for more than $600,000,” says Russell. While Horton searches for developable land on Atlanta's outskirts, it will open more projects within Atlanta's city limits in 2005 than it ever has in a year, including Park at Brown's Mill, a 180-unit townhome community scheduled, at press time, to have opened in May near Atlanta's airport, which Oxley notes is a healthy employment area.
Pulte has made a “conscious decision not to build way out” from D.C., says Stan Settle, vice president of land acquisition, and instead is focusing on smart-growth projects. But Pulte has the advantage of controlling 18,000 lots in the D.C. market, where the top 10 builders gained market share even as permits trailed off last year.
MAINTAINING DISCIPLINEMost large builders still want to dominate markets, but how they go about it doesn't always revolve around the number of homes they close. The Standard Pacific Corp., which delivered 1,635 homes in Phoenix in 2004 and controls 9,000 lots, will limit its growth there in 2007 to 3,000 homes in 30 communities. “The homes you'd need to close to stay in the top five would be tremendous,” says division president Pat Moroney. “We're taking a somewhat more conservative approach.” Chuck Fuhr, The Ryland Group's division president in Atlanta, says his company doesn't want to be Atlanta's largest builder, “just the most profitable.” Ryland expects to close 1,350 units in 2005, compared with 973 in 2004.
It will take discipline for builders to control their releases if demand, as expected, remains strong. In February 2005, Bowen Family Homes sold 65 units the first week it opened its Stonehaven community in Cummings, Ga., on Atlanta's northeastern fringe, says vice president of sales Randall Moore. Without advertising, by mid-March, Fulton Homes had signed up 4,000 prospective buyers in Phoenix to tour Fulton Ranch, its first master planned, mixed-use community, says operations vice president Dennis Webb. The catch: Fulton Ranch will include only 1,000 residential units.
John Caulfield is a freelance writer based in Old Bridge, N.J.
METHODOLOGYHanley Wood Market Intelligence, formerly Meyers Group and owned by Hanley Wood, LLC, publisher of BUILDER, is one of the home building industry's largest providers of information on new-home projects, land development, and real estate consulting services. It used the following methodology in compiling the 2004 Local Leaders:
The top 75 markets were determined based on the number of single-family permits issued in 2004 in metropolitan statistical areas/primary metropolitan statistical areas (MSAs/PMSAs), not consolidated metropolitan statistical areas (CMSAs), as previously defined by the U.S. Census Bureau.Builders were asked to provide 2004 closings.If a company was acquired or merged with another during 2004, figures include the results for both companies during the entire year.The country's largest home builders were contacted via fax and phone for their 2004 figures. For more information on Local Leaders, contact Hanley Wood Market Intelligence at 800-639-3777 or e-mail Jodi Bice at jbice@hanleywood.com.PUBLIC KNOWLEDGE
The market share of the top 10 national builders falls.
The top 10 national builders built thousands more homes in 2004 than in 2003. Their only problem: So did the competition. That means the market share of the top 10 public builders—D.R. Horton, Pulte, Lennar, Centex, KB Home, Beazer, Ryland, Hovnanian, M.D.C. Holdings, and NVR—fell slightly, to 24 percent in our top 50 markets (it stood at 25 percent a year ago). When our full list of 75 markets is considered, the top 10 accounted for 22 percent of all activity.
THINK BIG: Pardee Homes' Palo Verde Plan 4 in Las Vegas offers buyers approximately 5,051 square feet of living space from the high $600,000s.
BACK TO THE FUTURE: The Longford model is among the offerings that helped The Ryland Group grow in the Minneapolis/St. Paul area. Inspired by late-1800s Victorian style, the homes start at 1,530 square feet with three bedrooms and two baths. Prices begin at $295,990.
LIVING WELL: In its Tallyn's Reach community in Denver, Richmond American offers 11 plans from its American and Seasons collections. The homes are priced from the $200,000s, range in size from 1,300 square feet to 2,500 square feet, and offer Built-Green Features.
WEATHER WINNER: Centex Homes' Charter Wind plan, offered in Mukilteo, Wash., has become popular with buyers thanks to its main-floor great room and large upstairs bedrooms. The plan includes 3,258 square feet of living space at a price point starting at $465,990.
WATER WORLD: DiVosta Homes, a division of Pulte Homes—the No. 1 builder in West Palm Beach, Fla.—offers its Carlyle model in VillageWalk of Wellington, a gated community with a waterfront town center. Carlyle homes include four or five bedrooms, three baths, two-car garages, and start in the $500,000s.
DESERT OASIS: Meritage Homes Corp. jumped three spots within the soaring Tucson, Ariz., market, with 123 percent growth in closings between 2003 and 2004. One of the company's offerings in the market is the Sorrento plan, which delivers 2,490 square feet with four bedrooms and two baths.
MULTIPLE FACETS: Once again the top builder in the Cincinnati market, The Drees Co. builds a variety of products, including single-family, condominiums, and townhouses in its Crosspointe community in Batavia, Ohio.
CLOSE-IN SPACE: McCar Homes, Greenville, S.C.'s No. 2 largest builder, recently opened Richland Creek, a neighborhood located within minutes of downtown Greenville. The Conover plan features 2,841 square feet of living space, including five bedrooms and three and a half baths starting at $250,400.
NICHE FINDERS: Shea Homes has grabbed market share in Oakland, Calif., despite the market's saturation with other large builders. Pointe Marin ranks among the company's successful communities in the market. Breakers at Pointe Marin is the last piece of the community and includes homes starting in the $1 millions.
A TASTE OF ITALY: The McMillin Cos. builds its San Marco model, pictured here, in a gated hillside location in Bakersfield, Calif. The 3,628-square-foot plan price point starts in the low $500,000s and offers a number of design options.
UPWARDLY MOBILE: The Mitchell Co., ranked second in the Mobile, Ala., market, offers the Richmond model, at 2,749 square feet, in the Woodberry forest neighborhood at a base price of $217,900.
SUNNY SIDE UP: Shea Homes builds its Sherborne at Covenant Hills model in hot Ladera Ranch, Calif. Plan 3 offers an interior atrium in addition to 4,073 square feet that include five bedrooms and as many as five and a half baths.
†SOURCE: HBW