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 OUT Steffens 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.