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Like other home builders across the state, Steve O’Dowd is looking forward to a strong year. As president of Park Square Homes, a production builder in Orlando, O’Dowd expects to almost double his sales volume this year. “Last year we closed about 450 homes,” he says, “and we should reach about 800 this year.”

TREND: More seond-cycle development - older apartment buildings and hotels being renovated and converted to condominiums.

Low interest rates and a bear market on Wall Street have supported the nation’s housing market — and builders such as O’Dowd — for three years now. Despite the 2001 recession and weak recovery, 2002 was the strongest year for U.S. housing on record, says Kermit Baker, chief economist of the American Institute of Architects in Washington, D.C. Homeownership rates, investment in new construction, home sales, remodeling expenditures, home equity and mortgage refinance volumes all hit highs, even in the face of widespread job losses.

TREND: Continuing relatively low interest rates at least through 2003.

Most indicators point to interest rates remaining relatively low at least through 2003 — and to the housing market remaining strong. Lawrence Yun, senior forecast economist for the National Association of Realtors, says existing-home sales will rise about 3%, while existing-home prices will climb by about 6%. “People recognize that in the absence of stock market hysteria, the home is a very good investment,” says Noah Breakstone, president of Breakstone Homes in Coral Gables.

Aside from interest rates, three factors traditionally have had the most impact on Florida’s housing market. Following is an assessment of the trends in each of those areas.

ADDING HOMES
States with the largest gains in housing units from July 1, 2001, to July 1, 2002:
1. Texas	149,208
2. Florida	147,377
3. California	130,779
4. Georgia	87,909
5. North Carolina	76,480
Source: Census Bureau

THROUGH THE ROOF
The median existing-home price in Florida is about $10,000 below the U.S. median of $161,500. Here’s how Florida cities compare with others on median price:
City	Median Price
Anaheim / Santa Ana, Calif.	$448,400
Boston	413,500
Bergen / Passaic, N.J.	358,300
Honolulu	350,000
Los Angeles	307,900
Miami/Hialeah	202,200
Sarasota	192,700
Raleigh / Durham, N.C.	173,000
Bradenton	156,500
Austin / San Marcos, Texas	151,700
Tucson, Ariz.	150,100
Phoenix	147,300
Atlanta	146,400
Tampa /St. Petersburg / Clearwater	137,800
Orlando	137,700
Dallas	134,900
Fort Myers / Cape Coral	134,400
Gainesville	132,900
Birmingham, Ala.	131,900
Tallahassee	131,000
Memphis	129,300
Melbourne / Titusville / Palm Bay	124,900
Jacksonville	120,600
Pensacola	111,000
Daytona Beach	110,900
San Antonio	108,700
Rochester, N.Y.	90,400
Fort Wayne, Ind.	86,600
Syracuse, N.Y.	85,100
Waterloo/Cedar Falls, Iowa	80,700
Region	Median Price
West	$217,200
Northeast	178,500
South	152,200
Midwest	134,700
Source: National Association of Realtors, first-quarter 2003, preliminary

LAND AVAILABILITY
In the next decade, availability of land will be the single largest factor shaping the state’s primary housing market. Urban counties like Pinellas and Broward are nearing build-out, and new-home starts are falling in Miami-Dade County as well. For the first five months of 2003, building permits fell 18% in Miami-Dade and 37% in Broward while rising 28% in Palm Beach County. Because of land availability and affordability issues, St. Lucie County is shaping up to become the next high-growth market in south Florida. Orlando also enjoys a substantial land supply, transportation network and airport that are attractive to new employers.

With their lower land costs, northwest and north Florida will gradually take a larger share of the state’s retirement market, especially in the moderate-priced segment, which now centers on the Ocala area. While water and golf have always been major driving forces in attracting retirees, these amenities will carry increasingly higher costs and push up home prices.

With land growing more scarce, areas near the Atlantic and Gulf coasts will continue to see more second-cycle development. Older apartment buildings and once-fashionable hotels like The Collins on Miami Beach are being renovated and converted to condominiums. In Miami-Dade County, second-cycle development is under way in neighborhoods many miles from the ocean, including downtown Miami, North Bay Village and the Biscayne Boulevard corridor.

“In south Florida, the push for ‘eastward ho’ is creating the strongest urban land boom since the 1920s,” says Mike Pappas, president of The Keyes Co. in Miami. “The supply of land is so limited by the ocean and the Everglades while demand remains very strong. That’s why there are so many new developments in the downtown and eastern suburban areas.”

While Miami has led the way, second-cycle redevelopment is happening more frequently in the state’s most urbanized areas, as well as in their closest suburbs.

TREND: Increasing numbers of non-traditional households, including singles, unmarried couples without children, single parents with children and same-sex couples.

DEMOGRAPHICS
Florida’s population will continue to grow quickly. An estimated 330,000 people are expected to move to Florida in 2003, up slightly from the previous year. In contrast to many states’ experience, a majority of buyers of new and resale homes in Florida come from outside the state, although in 2001 nearly as many Floridians changed addresses within Florida (at least 234,000 people, according to the IRS) as moved here from other states (at least 260,000).

Florida’s primary migration flows continue to be from the Northeast and Midwest. Recent years also have seen a growing stream of Californians selling expensive homes and moving to the lower-cost climate here. European and Latin American buyers are important factors in the south Florida and Orlando markets, although they tend to be vacation-home buyers.

Another demographic trend involves shifts in the age distribution of the state’s population that will spur higher spending on both remodeling and new-home purchases in the coming years. Baker notes that by 2010, older Baby Boomers will be in their peak wealth years and younger Boomers will be in the peak-earning ages of 45 to 54. “The Boomers will still be an important force in home-buying markets because of their sheer numbers and economic clout,” he says.

While working-age families have traditionally been drawn to the state’s urban centers like Tampa Bay, Jacksonville, Orlando and south Florida, retirees or “active adults” prefer communities outside urban centers. Typically, this means central Florida, led by developments like The Villages in Lake County, and southwest Florida, whose country club communities have resulted in spectacular population growth in areas like Bonita Springs, Estero and Cape Coral.

TREND: Affordability issues. Annual appreciation rates of 10% to 25% in some markets have nudged prices out of reach of many new buyers. Affordable housing has become an important issue in Florida communities from Orlando to Miami.

While in-migration will continue to be a big factor in Florida’s housing markets, retiring Baby Boomers may not be moving as far as their parents did. A recent study by the National Association of Home Builders (NAHB) and Countrywide Home Loans indicates that most buyers age 50 and older are likely to choose a location close to their current home. “Baby Boomers and older home buyers want a maintenance-free lifestyle, freeing them up to travel, socialize and pursue the active lifestyles they want to lead,” says Kent Conine, NAHB president.

“At the same time,” adds Conine, “the study dispels the common perception that seniors prefer to move to traditional warm-weather retirement destinations like their parents did. An overwhelming majority of seniors want to live near their loved ones or in the communities where they have put down roots.”

That live-close-to-home trend means Florida builders may have to market more to aging Boomers within the state’s larger markets and less to out-of-state buyers. However, Florida’s ability to offer both luxury and affordable retirement homes, combined with a low-tax environment, means the state will continue to maintain its lead in this market.

COST
As suitable land becomes more scarce, labor costs are rising. In addition, developmental regulations and impact fees and other growth management requirements add to a developer’s costs. Those factors are reflected in higher new-home prices, smaller lots and more town home and condominium construction. Research indicates there will always be a market for traditional single-family detached homes in Florida. But increasingly, the trend in primary housing will be toward homes on smaller lots, more two-story town homes and urban condominiums, especially in the more developed counties.

TREND: Some increase in housing market risks. "Job losses have forced more mortgage holders into foreclosure, increased the number of homeowners spending half of their income on housing and softened some rental markets."

Rising prices also will result in conversions of rental apartments to condominium ownership. Price will become the ultimate amenity as more buyers look at multifamily units for their primary residences.

In addition, growth management restrictions in many communities will make it increasingly difficult to build large-scale planned communities like Palm Coast in Flagler County, Weston in Broward and Lakewood Ranch in Sarasota.

On the other hand, new communities like Victoria Park in DeLand and Harmony in Osceola County are making a virtue out of today’s environmental requirements. About 40% of the 1,800 acres at Victoria Park will be set aside for open space, gardens, parks and recreation, while 11,000-acre Harmony includes two lakes surrounded by wetlands and a forested area.

The combination of land scarcity and rising costs is forcing many developers to rethink their traditional strategies. For instance, Miami-based Lennar Corp., one of the nation’s largest builders, is shifting its emphasis in south Florida from large-scale suburban communities to smaller condominiums in urban settings. By 2008, CEO Stuart Miller expects single-family homes to be just 36% of Lennar’s total south Florida sales.

Condominium developments like the Grande in Kendall and 360° in North Bay Village can be more affordable than single-family homes and can be more easily squeezed into urban infill sites. “At 360°, we sold more than 100 residences in 90 days,” says Carlos Gonzalez, vice president of sales and marketing for Lennar’s subsidiary LDI. “In this day of skyrocketing waterfront real estate prices, buyers want to know that ‘value’ figures into the equation.”

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TIMESHARES

Fractional ownership is the fastest-growing segment in resort real estate, according to the American Resort Development Association.

In November, the Ritz-Carlton Golf Club & Spa is set to open in Jupiter, selling vacationers who want to enjoy golf, tennis, spa activities or other amenities a one-eighth interest in one of 67 club homes, starting at $221,000.

The Residence Club at Lighthouse Pointe in Amelia Island offers 40 four-bedroom homes. Like other new timeshares, the Amelia Island property caters to buyers who want larger units.

A HIGH-DENSITY FUTURE

The state’s housing market is becoming increasingly diverse. Loft residences, for instance, are a popular new option in transitional urban neighborhoods. Projects like NeoLofts on the Miami River and Westside Lofts on Miami Beach are selling briskly.

Higher-density housing is playing an increasingly important role in virtually all price ranges. The lines between single-family detached and attached homes will begin to blur as town homes and coach homes — buildings with access to first-floor and upper-floor apartments directly from the street level — become more available.

The latest generation of high-end condos offers private elevators and personal services and amenities previously found only in luxury resorts.

Developers will be challenged to offer the most popular amenities at affordable prices. The likelihood is that most Floridians will have to accept smaller residences. Smaller condos and town homes may become the only way to offer “starter” housing to the next generation.

Lewis M. Goodkin is president of Miami-based Goodkin Consulting, a strategic alliance with PricewaterhouseCoopers