TEMPERATURES SOARED IN Phoenix in the middle of May, even climbing to a record 106 degrees one day. That's only going to continue over the next five years, and we're not talking global warming.
For the past 35 years or so, it's been Atlanta sitting at the top of the list for housing starts, but in his projections for housing starts between 2005 and 2010, Philip Hopkins, managing director of U.S. Regional Services for Global Insight in Boston, has Phoenix surpassing Atlanta for the first time, with more than 386,000 starts in the five-year span, compared to Atlanta's 378,000.
But hold on, folks. Atlanta hasn't exactly cooled off. “Given that housing starts are such difficult variables to forecast, I look at those numbers, and to me they're really equivalent,” says Hopkins, who ranked the top 100 housing markets for BIG BUILDER magazine for the second year, complementing the rankings with pertinent information such as housing start rates, population levels, employment statistics, and other economic data. Hopkins has even assigned an economic opportunity ranking to each of the markets (for the variables behind that ranking, see “The E Factor: Top 20 Markets by Economic Opportunity,”).
Phoenix's rise to the top is noteworthy in part because it has succeeded in relieving Atlanta of No. 1 bragging rights after three decades. It also speaks volumes about the power of Phoenix.
One indication of that market's economic vibrancy is the number of immigrants moving there. Between 1998 and 2003, the Hispanic population jumped 40 percent—higher than any major market in more traditionally Hispanic enclave states, Texas and California (see “The H Factor: Top Hispanic Markets and Their Growth Rates,” page 60). The National Association of Realtors, in fact, looks at immigrant patterns to help it understand the housing industry. “The home price growth that we have been seeing in recent years in certain markets all have seen a sizable increase in immigrant population,” says NAR senior economist Lawrence Yun, citing Washington, D.C., as an example.
What other factors do economists look at in predicting local market housing trends? Most check job growth first. According to Stanley Duobinis, president of Crystal Ball Economics and former director of forecasting at the NAHB, it takes about 1.7 jobs to generate the demand for one additional house.
Approaches always differ. As much as economy.com's Celia Chen considers job growth in her forecasts, she likes another metric to monitor housing: income growth. “Actually, that's probably the most important—income growth, which is related to employment growth,” says the director of housing economics.
To varying degrees, builders are looking at such metrics themselves. Toll Brothers, unique in that it operates exclusively in the luxury homes market, has more of a “ground-level-up” approach, says Fred Cooper, senior vice president of finance. Toll's preferred strategy is to watch other luxury builders enter a market first and see how they fare. Still, Toll subscribes to such services as Claritas to get information on population, age trends, and job growth.
At the other extreme, Pulte has embraced demographics, appointing a “segmentation” czar in Steve Birch. In true Pulte fashion, the company feels it's at the leading edge in this area; also in true Pulte fashion, the company is coy about its approach because it feels it's ahead of the curve.
Beyond Phoenix and Atlanta, which are in a class by themselves, Duobinis notes a kinship in Hopkins' projections, particularly for mid-sized, up-and-coming metro areas: Most of the movers feature technology, universities, and perhaps state government. Idaho, once known for nothing but potatoes, now hosts Intel in Boise City (No. 44), with other technology companies having followed and clustered there.