Although home prices are slowing across the country, builders in Cumberland County, N.C., where the city of Fayetteville is located, are certain they'll see price increases over the next five years. That's because Fayetteville's biggest corporate citizens—Fort Bragg (Army) and Pope Air Force Base, home to a combined total of more than 53,000 Army and Air Force military personnel—will experience an influx of more than 6,700 soldiers and their dependents and as many as 25,000 new residents by 2011.

The increase is because of three Department of Defense initiatives that will reposition, restructure, and realign American armed forces in the wake of the Base Realignment and Closure (BRAC) commission's decision to close several bases and expand others, including Fort Bragg and Pope Air Force Base, which will be transferred to Army control and renamed Pope Army Air Field. The realignment also relocates the U.S. Army Forces Command (FORSCOM), bringing highly trained, highly ranked, and highly paid personnel to the region.

Locals expect the increase in military personnel to be good for business. “We're getting high-quality people,” says Cumberland County Business Council president Bill Martin. “They can help upgrade our community. [These people] will want nice things, such as four-star restaurants and high-quality shopping, arts, culture, and entertainment.”

WATCH IT GROW: Cumberland County businesses await an influx of new residents into a region that has serviced military personnel for generations. An unknown number of highly paid support personnel are expected to move to Fayetteville as well, including both civilian Army employees and representatives of the 250-plus contracting companies that do big business with these military customers. “What we've been told to expect is that FORSCOM coming to Fayetteville will be like the headquarters for Wal-Mart moving to Bentonville, Ark.,” says Martin.

Home builders in the area have similar expectations for the housing tastes of the transferees. “One of the significant changes is losing enlisted men, but we'll be gaining majors and colonels,” says Ralph Huff, president of H&H Constructors, the largest home builder in the Cumberland County/ Fayetteville area with 250 homes last year and 300 planned in 2006. “We hope they'll raise the bar on housing.”

VA RULES Although Fayetteville has a few large employers, the area is dominated primarily by the military and contractors connected to it. In this environment, it's no surprise that the Department of Veterans Affairs' (VA) appraisal guidelines and financing policies dominate the housing market. “Most builders in the area sell 75 to 80 percent of their houses to the military,” says Larry Strother, a top-selling Fayetteville real estate agent who is an owner of both Coldwell Banker United Realty and ERA Pennink & Strother Real Estate. “VA appraisals are based on competitive marketing analyses, not the costs to builders.” So a house with granite countertops or cherry cabinets won't appraise for any more than a neighboring house with laminate countertops and medium-density fibreboard (MDF) cabinets.

VA provides 100 percent financing, and buyers usually pay 1 percent of closing costs; builders pay 2 percent. Down payments in this market are rare. “A buyer with $2,000 gets a $200,000 house,” says Huff. “That's why VA controls the price. They want to make sure they don't pay more for a house than it's worth, because they aren't protected by a down payment.”

With VA appraisals setting house values, builders have no pricing power. “Whatever the VA prices the house for [that] is its sales price,” says David Evans, a real estate agent with Century 21 Weaver & Associates. Consequently, net profit margins of about 8 percent are the norm, compared with 9 or 9.5 percent nationally.

With price competition virtually eliminated by the VA, the real competition is for land and lots. “Land is readily available,” says Chalmers McCombs, Fayetteville division manager for Bill Clark Homes. “What is not readily available is land with infrastructure improvements.”

Water and sewer service are the main infrastructure problems. Funded by city taxes, the Fayetteville-owned Public Works Commission provides electricity, water, and sewer for all city residents. Fayetteville recently annexed approximately 40,000 new residents who are now paying taxes but aren't yet receiving city water and sewer service.

Learn more about markets featured in this article: Fayetteville, NC.