Homebuilders still have a confidence problem. But they're starting to believe that the stabilizing housing market could lay the foundation for them to build on.
In much of the country, it's hard to justify putting up shiny new subdivisions with so many low-cost existing homes up for sale, unemployment rising, and buyers struggling to qualify for loans. But look outside of the nation's pricey metros and suburbs, and you'll find pockets where the builders are back.
BusinessWeek teamed up with Costa Mesa (Calif.)-based Hanley Wood Market Intelligence to rank the nation's strongest building markets. They found booming metros where military, government, and energy jobs—as well as natural disasters—are driving up demand for new construction.
Rebuilding Projects Many of the areas had a surge in apartment construction to accommodate younger populations and workers looking for temporary homes. In Lake Charles, La., building permits rose 122% during the first six months of the year. Construction now plays a major role in the local economy as the metro rebuilds after Hurricane Ike last year and Hurricane Rita in 2005. But the economy also has gotten a boost from the petrochemical industry as well as large projects such as the new nuclear power fabrication facility now under construction.
Builders in Fayetteville (N.C.) metro, home of the U.S. Army's Fort Bragg, are preparing for a flood of new residents arriving as part of the Base Realignment and Closure program. About 40,000 civilians, defense contractors and soldiers are expected to move into the 11-county region around Fort Bragg by 2013. Already, $2 billion in construction projects are under way on the base alone, says Tim McNeill, chairman of the Bragg Regional Task Force. "Construction has slowed here but it never stopped," McNeill says. "People are moving in and buying houses, and a lot of folks in the construction trade have maintained their employment."
Building permits issued in the first six months of this year increased from the same period last year in 10 metropolitan areas, including Lake Charles; Beaumont, Tex.; Fayetteville; Salt Lake City; Huntsville, Ala.; and Little Rock, Ark. Permits for the nation as a whole, by comparison, plunged 32% in August from the year before, according to a U.S. Commerce Department report released Sept. 17.
The rest of the country is showing more modest improvements. Building permits issued for new homes and apartments rose 2.7% in August from the previous month on a seasonally adjusted basis. A National Association of Home Builders index released this week said that builder confidence in the sales prospects for new homes—though very low—is better than it has been since May 2008. But builder pessimism is still well above normal.
Build Builders While much of the new permits are going to local area builders, the national giants are also beginning to see an uptick. Los Angeles-based KB Home (KBH) is resuming construction in the Washington, D.C., and mid-Atlantic region after pulling back from those markets last spring, the Washington Business Journal reported Sept. 16. The homes it plans to build in the D.C. area are part of its new low-cost, energy-efficient Open Series of homes, which have sold well since launching late last year. Even luxury builder Toll Brothers (TOLL), which has started cutting back on incentives in some markets, says it is feeling more confident as demand edges up—even for its $1 million-plus homes in Hoboken, N.J.
David Crowe, chief economist for the National Association of Home Builders in Washington, says builders are largely limiting work to projects that would appeal to first-time home buyers, the market's strongest segment. An $8,000 tax credit for first-time buyers might be largely responsible for recent improvements in housing starts and permits as builders scramble to take advantage of the credit before it expires Dec. 1, he says. "Builders as a whole are very careful about future planning," Crowe says.
Developers in Huntsville, Ala., where building permits for apartments jumped 400% this year, have reason to be more confident. Huntsville's economy, bolstered by a growing job base at Redstone Arsenal and the U.S. Space & Rocket Center, is one of the best in the country. "It's a really good place for builders to be," says Buck Barnhill, owner of Southern Exposure Information, a publisher of Alabama construction and market reports. "If you came to Huntsville, you wouldn't even know there was a problem in the U.S. Construction crews are everywhere. They're building hotels, the downtown is being renovated, and new schools are being built."
A recovery in the new-home market also could give the area a further boost, says builder Mark Harris, since newcomers might need to sell homes elsewhere before they can buy one in Huntsville. "As the national real estate market picks up, ours picks up," he says.
Click here to see America's 20 Strongest Building Markets.