List Research By Meyers Group
EVERY GAMBLER KNOWS that luck runs in cycles. Some tables are hot, and others are downright chilly. In ways, real estate markets aren't much different. Some regions constantly pay off for builders, while others struggle to break even.
Once again the Meyers Group has compiled Local Leaders, the 10 largest builders, by number of closings, in the top 50 markets. This year, we also crunched the numbers to see which markets were winners when it came to percentage growth in permits from 2002 to 2003, and which markets were hoping for a change of luck.
When You're Hot, You're Hot Much to no one's surprise, the top five markets in terms of percentage growth in permits were in Florida. The Sunshine State has drawn home buyers—and builders—for decades, and as long as the land supply holds out, there's no indication that the growth will slow. Many of the factors that have always made the state attractive contributed to the growth in 2003, with low mortgage rates and the stock market meltdown adding to the appeal of real estate as an investment.
If a single factor seemed to fuel growth in all these markets, it was affordability.
“From a global perspective, housing prices in the majority of our markets are still below the national level and considered affordable by potential buyers coming predominantly from the Northeast and Midwest,” says Michael Greenberg, senior vice president, home building and real estate services, for WCI Communities, a top 10 builder in two of the top-growth markets, Miami and Fort Myers/Cape Coral.
The top market, with a staggering 92 percent increase in permit activity, was Fort Pierce/Port St. Lucie. Once little more than a pit stop on the turnpike, the area has exploded as a home base for commuters to West Palm Beach.
“With the anti-growth sentiment in Martin County, builders—and therefore prospective home buyers—are looking further north into St. Lucie County, which is currently more developer-friendly,” says Mike Donnelly, Southeast Florida division vice president for Toll Brothers, a top 10 builder in Fort Pierce/Port St. Lucie. “The area still offers proximity to the business and economic centers of West Palm Beach, while being set apart from the traffic and congestion. Factors such as more affordable home prices and larger lot sizes than are typical throughout Southeast Florida make the area especially appealing to families, as well as to empty-nesters who enjoy the area's quieter, more relaxed lifestyle.
“As available land becomes even more scarce in the southern counties,” Donnelly goes on, “and if the anti-growth sentiment continues throughout Martin County, we anticipate continued growth in the Fort Pierce/St. Lucie market.”
The houses being built address the needs of middle-income families, says Bill Hall, director of development and new-home sales for Jupiter, Fla.–based Illustrated Properties, a major real estate agency and land developer in the region.
“There's a lot of single-family detached, six to seven units to the acre, not large-lot kinds of things,” he says. “It's great stuff for people who need to work.”
The situation is much the same for the other Florida markets—Daytona Beach, Miami/Fort Lauderdale, Fort Myers/Cape Coral, and Orlando—that round out the top five in permit growth, says economist and financial consultant Dr. Hank Fishkind, who specializes in economic forecasting for Florida.
In Fort Myers, “the story is that Bonita Springs has become north Naples,” Fishkind says. “But the bigger shocker is Cape Coral. If you're a worker bee in Naples, you can live in Cape Coral.”
Orlando has benefited from a rebound in tourism since the terrorist attacks of Sept. 11, 2001. That rebound has spurred job growth. With low interest rates and relatively affordable housing, the region shows no sign of slowing down, Fishkind adds, although he doesn't predict any acceleration, either.
“At some point you simply can't go any faster,” he says. “Orlando is at that point.”
Builders in Daytona Beach wish they could go faster, because as it is now, they can barely keep up with the demand.
“As long as interest rates stay down where they are now, I don't see it letting up,” says Doug Ross, Daytona-Flagler division president for ICI Homes, the No. 2 builder in the market. “Right now, production times have extended out for all builders because our resources are stretched thin. We're trying to cut back by increasing prices so we can meet the buyers' expectations and keep production cycles under control.”
Against The Odds While the top markets may have affordability in common, the markets that have taken the biggest hits face a variety of challenges, from job losses to government regulation to bad weather.
John Kortecamp, executive vice president and CEO of the HBA of Maryland, says that smart-growth restrictions, a lack of commitment from government to fund needed infrastructure, and NIMBY-ism have created a “major crisis in inventory” in the Baltimore region, which had the biggest percentage drop in new permits, down 12 percent.
“We're getting fewer units on just about any parcel you can think of,” he says. “Developments are being defeated outright or reduced, and we're not talking about trying to jam townhouses in a community of up-scale individual units. We're getting hammered.”
Brad McDearman, an economic development consultant based in Baltimore who specializes in site selection, says he sees the same scenario. Surrounding counties have enacted building moratoriums “and for good reason,” he observes. “They've let things go.”
Looking ahead, McDearman says builders need to look to the city cores and inner-ring suburbs for revitalization opportunities.
“A lot of builders have been very frustrated with the situation in Maryland,” he says. “Instead of getting angry at not having greenfield development, you have to be creative and think differently.”
Fighting A Losing Streak Three markets in particular—Denver; Oakland, Calif.; and Greensboro/ Winston-Salem, N.C.—are battling back from dramatic losses in jobs.
Denver lost 50,000 jobs in two years, says Richard Staky, Colorado region president for John Laing Homes. But the Denver market still sold 12,000 new homes in 2003.
“It's all about being a smart builder, knowing what customers want at a good value,” Staky explains. “We believe we can grow our business even if the market doesn't improve dramatically. We're being very selective, doing a lot of research about who's not being served.”
The Oakland market is “definitely continuing to descend,” says Michael Patricio, division president for title insurance and escrow company Stewart Title of California. “Looking at it right now, buyers are doing interest-only loans. You don't see conventional loans, so there's probably not that much money out there. The only reason people are still buying is that the interest rates are so low.”
The market also continues to have extremely high housing costs, while the job market recovers from the dot-com bust.
Many of the jobs in the Greensboro/Winston-Salem/High Point, N.C., market left the country; textile and furniture manufacturing were primary employers. Additionally, the tobacco industry that supported the area is slowly disappearing. “From those three markets, there were a ton of job losses,” says John Nance, divisional vice president for the central Carolina division of D.R. Horton, a top 10 builder in the Greensboro market.
The region's economic development groups are working hard to recruit new businesses, though, and Nance anticipates a rebound. “I think we're starting to dig our way out of it now,” he says. “We are just starting to see some new jobs come back into the market.”
Winning The Hard Way In Philadelphia, builders have found themselves battling heavy government restrictions, an average three-year approval process, and a strong anti-growth bias. With that many obstacles, it's tough to make any project work, says Duane Searles, executive vice president of the BIA of Philadelphia.
But at the same time, the market is hot, and any house that does get built is snapped up.
“Although it's hard to get permits and get land approved, once you get that permit and start building, you know there will be buyers at the other end ready to buy,” he says. “Government has established an arbitrary limit on the supply.”
He doesn't see that changing any time soon.
“There's no movement from government,” Searles says. “There's a lack of appreciation of the consequences of their actions.”
Brian O'Neill, president and founder of O'Neill Properties Group in Philadelphia, says it's the tightest for-sale and for-rent marketing in the country. Economically, the region is in great shape, the developer says, but what's been good for business has been bad for builders.
“You can't get zoning,” says O'Neill, whose firm is the state's leading private real estate development company. “The western suburbs where the bulk of the housing starts have been have very conservative governments that make it almost impossible to obtain permits.”
The situation in Richmond, Va., is far easier to solve. It just needs to stop raining, says Susan Sprigg, executive vice president of the HBA of Richmond.
“We got so far behind, builders couldn't finish what they had,” she says. “They still haven't. The market is very good. I anticipate 2004 will show the permits they would have taken out in 2003.”
Methodology Meyers Group, which is one of the home building industry's largest providers of information on new-home projects, land development, and real estate consulting services, used the following methodology in compiling the 2003 Local Leaders:
Winners And Losers Top five markets for percentage change in single-family permits:
|2003||% change from 2002|
|1. Fort Pierce/Port St. Lucie, Fla.||8,195||92%|
|2. Daytona Beach, Fla.||8,600||38%|
|4. Fort Myers/Cape Coral, Fla.||9,503||33%|
|5. Orlando, Fla.||22,385||29%|
Bottom five markets for percentage change in single-family permits:
|2003||% change from 2002|
|3. Richmond/Petersburg, Va.||6,373||-7%|
|4. Greensboro/Winston-Salem/ High Point, N.C.||8,449||-5%|
|5. Oakland, Calif.||7159||-3%|
|SOURCE: U.S. CENSUS BUREAU|
Top 10 Market Share As the top 10 public builders grow nationally, they also grow locally. In 2003, these companies—D.R. Horton, Pulte, Lennar, Centex, KB Home, Beazer, Ryland, NVR, Hovnanian, and M.D.C. Holdings—captured 25 percent of the single-family building activity in the country's top 50 housing markets, based on Local Leaders data. In 2002, this figure was 24 percent.