With the last half of 2006, the pivotal question in the local home market underwent an evolution.

For first-time home buyers, the question is no longer “Will prices drop?”

During six months in 2006, they did drop almost 15 percent.

Now, as the number of sales still hovers about 20 percent below that of last year, the slow market conjures a different question:

“Where’s the bottom?”

According to the Florida Association of Realtors, the median single-family home price in the Jacksonville area peaked at $213,500 in June and has fallen nearly 15 percent to $182,000 in November. Between October and November, the price fell about 8 percent.

Meanwhile, the number of sales continues to be low - about 19 percent fewer single-family homes were sold in November than in November 2005.

The North Florida housing market has been so weak that some economists fear it will drag down the rest of the economy.

The Federal Reserve Bank of Atlanta event predicted moderate growth in the entire Southeast this year, dragged down in part by the anemic Florida real estate market.

Meanwhile, local analysts have varying opinions of what the bottom will look like - both here in North Florida and nationally. At the end of last year, Wachovia economist Mark Vitner estimated that the market was in the midst of a correction that would last another 6-9 months.

University of North Florida real estate professor Sid Rosenberg arrives at a “fair market value” far below even the November figures. According to Rosenberg, the value of homes in Jacksonville should be about $165,000 based on what an earner with the local median income can afford.

That doesn’t mean Rosenberg expects the median price to fall another 9 percent. Instead, it just won’t go up, as the fair value catches up to actual sales prices, he said.

In fact, if prices had risen at the same rate during the past three years as they had in the year before the local boom, the median price would actually stand at about $165,000 already.

“Buyers know that they’ve got a buyers’ market, and if it were me, I’m going to sit there and negotiate very hard,” Rosenberg said.

“Just make a offer that’s lower than normal, and if it’s not accepted, just move on. Because right now, you can.”

Few analysts expect a decrease as rapid as the stock market decline five years ago. The housing market doesn’t act like the stock market. Homes can’t be sold as easily as stocks, and even though the national market, on average, might dip, unique characteristics of every home - not to mention the volatility of Florida home mortgage costs - keeps home prices from moving uniformly.

Local home builders say the bottom is already here. To try to drum up confidence in the local market, the local builders’ association started an advertising campaign several months ago heralding the Jacksonville housing market as a great buy. The city’s strengths? Record low unemployment - 3.4 percent in November - and a historically steady price run-up.

“I believe we’re at the end of the price discounting period,” said David Parker, president of local real estate consulting firm Parker Associates.

Parker said home builder discounts and incentives have already pulled some buyers off the fence and into sales offices. Although he said he doesn’t expect prices to rise at a rate comparable to that of two years ago, prices will rise modestly in the first quarter.

Local real estate analyst Ray Rodriguez advises that those trying to sell shouldn’t be greedy as the market corrects itself.

Those selling their old home must compete against home builders trying to get rid of excess inventory, high Florida mortgage costs due to the high listing prices, and buyers tending to prefer a new product in this area.

“Do not look for a quick turnaround. We might have some initial signs, like builders reporting increased foot traffic. But it finishes with closings. Closings are what matter,” he said.

Prospective home buyers have been sitting on the real estate market fence for months, but developers say recent statistics show they are starting to jump off and back into model homes.

After home sales tumbled during the second half of 2006, many single-family house builders responded with price cuts and incentives to reduce excess inventory. Now their efforts seem to be paying off with an increase in foot traffic at model homes.

With visits to custom-built models up 50 percent to 60 percent, and 200 percent in semi-custom models, Pineapple Corp. of North Florida President William Ash sees signs of better times. Florida mortgage loan activity appears to be picking up.

“It’s pretty OK out there,” Ash said. “We’re very bullish on 2007.”

Brylen Homes Inc. President Bryan Lendry attributed the good news to a decline in builder inventory, the conclusion of the mid-term election campaign, more positive news coverage and the Northeast Florida Builders Association’s It’s a Great Time to Buy campaign, launched two months ago.

“Everything’s clicking together,” Lendry said. “It would be safe to say that we’re seeing a rebound.”

In Lendry’s case, model home visitors jumped from 83 in November 2005 to 136 in November 2006.

With 64 visitors documented during the first two weeks of December, numbers are on schedule to double compared with December 2005, when residential real estate sales in the Jacksonville housing market were near record levels.

KB Home Inc.’s visitor traffic increased by 10 percent in December and in the fourth quarter as a whole.

Spokeswoman Cara Kane said many of the visitors came to see the model homes in communities that opened in the last 30 days. Although sales are not up significantly yet for KB, Kane said she expects them to increase as well in the coming weeks.

Model home visits are already translating into more sales for Pineapple.

Ash said the company has closed on two homes in the past 30 days, which is up from one sale about every 45 days during normal Florida housing market conditions.

Engle Homes Inc.’s model home traffic counts are up from the 70s in October to the 90s so far this month, and Jacksonville division President Andy Chambers said those who are visiting are “true buyers,” meaning they plan to live in the homes they buy.

“December is not historically a great buying season for Jacksonville,” Chambers said. “We’re very encouraged.”

Beazer Homes Jacksonville region President Barbara Moore attributed much of her company’s traffic increases this month to the fact that many prospective buyers realize that incentives and lower prices will not be available much longer. Beazer’s excess inventory will be gone in one to two months, she said.

Moore expects the number of model-home visitors to continue increasing in 2007, as well as the number of home sales and Florida mortgage applications.

“But it will be predominantly real home buyers, which is a good thing,” she said. “It’s not healthy to have a lot of speculators in the market.”

A concerned local builders group is trying to fight what it says is a negative spin on the North Florida housing market, the Times-Union reports.

In the wake of fewer sales and increasing inventory, local home builders and Realtors are arming themselves with a weapon they hope will help turn the tide in the local market:

Information.

A seminar on Tuesday held by the Northeast Florida Builders Association gave an outlook for Jacksonville’s home market and reasons for optimism among builders and Realtors, who face a market much slower than that of 2005. Most speakers hit the audience with a similar message:

“Now is a great time to buy.”

The seminar was just the latest effort put on by the association, which has already spearheaded a campaign to communicate home statistics directly to potential buyers. About six weeks ago, the association met to discuss what it felt was a negative spin by the media on the real estate market.

They developed a Web site - JaxHomeFacts.com - and a series of TV and print ads to allay buyers’ concerns about the local market and tout it as one of the best buys in the state. With the program in its early stages, program directors don’t yet have a firm handle on how it has affected the market.

Speakers at the seminar tried to pinpoint why the number of sales have declined and what can be done to turn the market around, especially as Florida home mortgage costs remain low and the local economy is growing at a consistent clip.

Building consultant Charlie Clark cited unrealistic expectations among sellers as one of the reasons the number of sales has slowed.

“Just because they think their home is worth something, it doesn’t mean somebody else does,” he said.

He said investors helped absorb inventory during the local boom and now they are walking away from contracts or putting those homes back on the market at prices lower than what it costs builders to build homes. That means more homes than there are buyers, so no matter how good the Florida mortgage rates are, there is going to be a huge lag in sales.

Nationally, market analysts have said speculators fueled the rapid home price appreciation seen in some parts of the country. Now sales have dropped as buyers balk at the high costs of homes and sellers hold out for the same rate of appreciation the market saw in 2001-2005.

Both Clark and Wachovia Corp. senior economist Mark Vitner cited low rates as a reason for people to buy homes. Although JaxHomeFacts’s media campaign might reach buyers directly, evidence of the strength in the Jacksonville housing market seems to not be reaching home builders’ sales people, said Clockwork Marketing president Maxine McBride.

When asked by shoppers if it was a good time to buy, associates cited strong incentives given by builders rather than strong aspects of the market, emphasizing the need for builders to get the message across on the ground level.

“It’s no longer business as usual,” she said. “People want a magic bullet, but there is none.”

In a year marked by falling home prices, record-high inventory and shocking hikes in property taxes, putting a positive spin on the Pensacola area’s 2006 housing market would seem a difficult task.

But according to the Pensacola News-Journal, some local Realtors are doing just that, looking past the roller-coaster year and the homeowner’s insurance quagmire gripping the state to strike a similar theme: “Things aren’t that bad, and it’s a great time to buy.”

“In spite of a lot of bad-looking data, this year in Pensacola is going to end up probably better than the state and certainly better than most of the counties in the Panhandle,” said Auby Smith, the outgoing president of the Pensacola Association of Realtors. “In fact, it’s going to be the third best year (in terms of sales volume) ever.”

Smith added he is optimistic about 2007 because Florida mortgage rates remain low and residential home prices have settled back to realistic market levels. Veteran Realtor Al Ingram agrees with Smith that it’s a buyer’s market.

“In my 25 years in the real estate market, I’ve never seen a better time to buy or sell. Inventory is high, but mortgage rates continue to be low,” Ingram said, adding that sellers finally are reducing unrealistic prices for their homes and letting the market price their property.

Houses priced “at market” are selling relatively quickly, experts say.

Despite Smith’s and Ingram’s upbeat take on the North Florida housing market, the inventory of unsold homes remains at record levels. At the end of last week, the Pensacola MLS had more than 6,400 homes on the market, and that number excluded houses “for sale by owner.”

That consistently high amount of inventory, which has hovered above 6,000 for the past six months, worries Al Muller, co-owner of Metro Market Trends, an independent Pensacola firm that monitors home sales.

“The biggest question coming up with people I talk to is, ‘With more than 6,000 homes for sale, just what do those people do when they sell?’ ” Muller said. “How many have left the area because of hurricanes, high insurance rates and property taxes? That’s the critical question.”

While Muller said he lacks the data to answer that question, he points to recent U.S. Census data that show Escambia is one of only two counties in Florida — the other is Monroe — that have shown a net loss in population between 2003-2005.

Much of that loss can be attributed to the effects Hurricane Ivan had on Pensacola Bay Area housing stock, Muller said. But the question remains whether many former residents have left Escambia County permanently due to problems making Florida home mortgage payments or for other reasons altogether.

Ingram, however, believes that a large portion of the housing inventory is composed of large homes occupied by baby boomers looking to downsize.

“What I see happening is people selling larger homes and buying some smaller, newer houses with lots of amenities. With taxes and insurance so high, people are putting more into less,” Ingram said.

Althea Gaines, a paralegal for a Tallahassee law firm, began searching for years ago, but soon became frustrated with the process of buying a home.

“I came to the conclusion quickly there was little I could afford,” said the 31-year old mother of four. “The market doesn’t give you much to work with.”

Even as the market levels off from years of skyrocketing prices and record home sales, events of the past few years have made the dream of home ownership a challenge for a great many middle- and working-class families. It’s a problem that comes not just from prices and incomes, but is exacerbated by hurricanes and a glut of condo conversions.

State affordable housing advocates, lawmakers and employers are searching for solutions to a problem that is not limited to individuals who can’t afford homeownership. Policymakers address the issue as a threat to the Northeast Florida economy as well as that of the whole Sunshine State.

In the North Florida housing market, where the affordable housing crunch has not been as keenly felt as in South Florida where prices shot even higher, home prices still have risen precipitously.

But by some bankers’ measures, Tallahassee remains among the state’s top areas for affordable housing. Affordable housing advocates, and the experience of residents like Gaines and others, indicate that the area has not been immune from the same forces at work more acutely elsewhere.

• According to the Florida Association of Realtors, the median price for an existing house in Tallahassee rose from $129,700 in 2001, to $185,000 in September.
• Between 2002 and 2005, the statewide median family income rose from $51,800 to $52,550, while the median existing home price jumped from $137,800 to $235,100.

A recent federal study showed only 33 percent of Florida families could afford to purchase a median-priced home in the state using a conventional Florida mortgage, compared to 70 percent in 1999. With homes rising two or three times faster than incomes, that’s a recipe for disaster as far as first-time buyers are concerned.

Oh, and rising property taxes, along with a statewide homeowner’s insurance crisis, haven’t helped the equation, either.

The affordable housing shortage became so pervasive that the Legislature formed an affordable housing workgroup to figure out ways to make homes more affordable. The Tallahassee City Commission passed an inclusionary zoning ordinance, which mandates that developments of 50 or more units in more expensive parts of town price 10 percent of units below $160,000.

Gregory Miller, chief economist for SunTrust bank, based in Atlanta, said Tallahassee is the most affordable place to live in Florida. Miller said statistics show a family in Tallahassee can afford to buy a house 35-40 percent above the median-priced home.

As a whole, Florida outpaces most other states in home costs. The American Dream Coalition said a new four-bedroom home in Austin, Texas, would cost about $200,000. That same home would cost $300,000 in Tallahassee; $350,000 in Daytona and $400,000 in Fort Lauderdale. That’s enough to push Florida mortgage loan payments through the roof.

The affordable housing issue has many state leaders, private and public, scrambling to find ways to help working- and middle-class families buy homes. Solutions vary, from employers buying land for work-force housing to prospective home buyers receiving government down payment help.

The Tallahassee Habitat for Humanity board decided in February to increase the minimum guideline for income requirements, meaning to qualify for the program families must earn 40-60 percent of the area median income, instead of 30-60 percent.

A new development that already will include affordable housing under the Tallahassee’s new inclusionary housing zoning ordinance may be able to provide more affordable units than planned - if a grant application passes muster with state officials next month.

According to the Tallahassee Democrat, K2 Urbancorp and city officials are finishing a joint, public/private partnership application for a $5 million grant from the Community Workforce Housing Innovation Program. CWHIP was created by the 2006 Florida Legislature to address the workforce housing crisis.

• The Florida Legislature earmarked $50 million for the program.
• That money will be divided in $5 million grants to qualifying applicants in locations across the state. The grant program is being administered by Florida Housing Finance Corp.
• K2 Urbancorp is building Evening Rose, which will combine residential, office and commercial real estate development in a traditional, neighborhood setting.
• The city of Tallahassee is contributing $2.69 million toward the grant to meet the program’s requirement that local government kick in a 15-percent match of the total cost of the development.

With Florida mortgage costs skyrocketing in recent years and leaving many working-class professionals shut out of the market, the need for this kind of housing is greater than ever. City staffers have found sources for all but about $1.2 million of the required 15-percent match and should be able to locate the remaining money in time for a final review of the application before submitting it to the Florida Housing Finance Corp. on December 15.

To earn expedited permitting and other incentives offered in the city’s zoning ordinance, all of the 92 town-home units will be offered at reduced workforce housing prices. A two bedroom, two bath apartment that normally sells for $260,000 would be reduced to as low as $150,000, if K2 Urbancorp is awarded the grant.

Under the city ordinance, a developer of a subdivision of 50 or more units is required to offer 10 percent of the units at workforce-level prices no higher than $159,000. The mandatory requirement applies mostly in two zones in the city’s north and northeast quadrants.

Most importantly, the development is inside the city limits, where more middle-class workers in recent years are finding it difficult to find affordable homes. With the North Florida housing market starting to gain ground on the southern portion of the Sunshine State, this comes not a moment too soon.

Phase one of Evening Rose will include 74 detached single-family homes that start in the low $300,000s and 25 attached town homes that start in the mid $200,000s, and estate homes that start at $600,000. Ten of the phase-one town homes will be sold at prices matched for income-eligible buyers (people whose Florida mortgage loan payments would be a certain amount) as determined by the city. Phase-one homes are expected to be done by April.

The same formula will apply to buyers of the 92 attached town homes in phase two. Families with annual incomes up to $75,000 can qualify for the work-force units, Wamsley said. In phase two, 46 of the 92 town homes will be reserved for income-eligible essential workforce personnel. The 46 town homes left over will be reserved for local workers who can meet the income requirements as set by the city.

A real estate investment firm that entered the North Florida housing market a year ago has sold its first property and is already looking to expand its local presence.

LOB LLC bought the Admiral Apartments in Orange Park in September of last year for $1.3 million. After spending about $125,000 on a new roof and other improvements for the 30-unit complex, LOB sold the property for $1.7 million to Marius Lazureanu, operating as Admiral Apartments LLC.

The Florida home improvement loans taken out by the company allowed it to bump up the property values and, in turn, raise rents about 13 percent, with one-bedroom rents going from $450 to $560 a month and rents for two-bedroom units going from $550 to $670 a month.

LOB also owns two other apartment complexes in the Jacksonville vicinity and is pursuing a similar strategy of improving the properties in order to sell them. With Florida mortgage loan costs as high as they have been, a strong demand still exists for rental units — and LOB LLC is prepared to capitalize on that trend.

“We are value-added players in every deal,” said David A. Fleisher, a partner in the real estate investment group. “We always look for the improvements, usually property improvements and managing expenses and managing rents.”

LOB is based in South Florida, but has shifted its focus to the Northeast corner, given the increasingly expensive costs of Florida real estate in the southern portion of the state. The company is looking at two larger properties and hope eventually to have more than 1,000 units. The shift north, Fleisher said, was based on market dynamics.

“The numbers in South Florida just didn’t work for us,” he said. “We’re not even looking in South Florida at the moment.”

Thanks in large part to a slowing North Florida housing market, that part of the Sunshine State could be in for a disappointing holiday sales season economically, some forecasters predict.

In Pensacola speaking to a roundtable of area economists and local SunTrust bankers, analyst Greg Miller said he “suspects it will be an unfortunate Christmas” for many because of low inventory and high expectations from consumers of steep price discounts on gift items.

“One of the processes making consumers worse off,” Miller noted, “is the lack of inventory among retailers.”

Taking a generally pessimistic view, Miller also noted that the Florida real estate market and the national economy are in the midst of a big slowdown, and may be headed toward recession.

“The national economy is in the process of gearing down. We’re living it now. We saw in March that the economy was not going to sustain itself at a 5 percent growth rate,” said Miller.

Even with consumer confidence strong, the nation’s economic growth rate now is hovering at an anemic 1.5 percent. Leading this broad slowdown is the housing market, currently undergoing a wrenching contraction coupled with massive pressure on home prices.

He predicted the housing market could see a price correction approaching 35 percent in some areas. Uncertain Florida mortgage rates and staggeringly high median home prices have led many in the Sunshine State — particularly in the southern half — to wonder not if, but when this is going to hit.

The hardest hit sector of the housing market will probably be high-end investment condos, which may face a severe price corrections.

“The investor side of the condominium market could be in for some bad news,” he said.

To make matters worse, investors are pulling money out of real estate and putting it in cash and the stock market. On the positive side, however, sales of “lower-end” housing — in the $200,000-300,000 range — are starting to pick up, a good sign for both home builders and realtors.

Miller’s predictions led University of West Florida economist Rick Harper to ask whether the residential housing market is shifting away from high-growth coastal areas in Florida to inland developments in North Carolina and Tennessee. That’s good news for those seeking affordable housing in a region that offers relatively little of it.

A South Florida native, Miller has witnessed several big-time housing corrections in Florida over the past several decades, and in every case, investors returned to coastal properties in even greater numbers than before. Residential property is still an attractive investment, so don’t look for Florida home mortgage loan demand to fade over the long run.

At first glance, the North Florida real estate market is slowing down –leveling off at worst. However, if you look deeper, and examine where we were at five years ago, the market is much stronger and analysts predict. The recent cooling off is only a trend that won’t last much longer, the Jacksonville Daily Record predicts.

The 2004-05 housing boom took homes sales and housing production well above levels supportable by demographics and other fundamental demand factors.

“The cumulative excess of housing starts nationwide apparently amounted to at least 400,000 units, and the excess supply now resides in builder inventories or in the hands of investors who may cancel contracts or sell vacant units at any time,” said David Seiders, chief economist with the National Association of Home Builders (NAHB).

“It’s clear that the housing downswing still has some distance to go, if only to work off excess supply in markets for both new and existing homes including the condo market.”

Bryan Lendry, local builder and past president of the Northeast Florida Builders Association (NEFBA), concurs, stating that builders are reacting sensibly to the demands of the market.

“Builders are not pulling permits for new homes until they have reduced their inventory — which is exactly what they should be doing. No one thought the activity we experienced in 2005 could be sustained,” he said.

Data collected from permitting offices in Clay, Duval, Nassau and St. Johns counties indicated 534 new permits obtained by home builders for single-family homes in the four-county area during September.

This brings the total number of permits issued through the third quarter to 9,267. The monthly average this year is 1,029, compared to the monthly average in 2005 of 1,479. That’s down significantly, but up dramatically from 2001 when the monthly average was 756 and Florida mortgage loan rates were at record lows.

“Looking at the data over a five-year period, Northeast Florida is still having one of the best years in terms of housing it has ever had. The market simply is adjusting after the explosion we experienced last year,” Lendry said.

The expert also noted that may area builders are offering incentives, making this an ideal time for would-be home purchasers.

“With approximately 2,000 people moving to the Jacksonville housing market every month, our property values will remain stable. So, new buyers can take advantage of near record low interest rates and the availability of homes in inventory. This time last year, builders’ inventories were low because they were selling houses faster than they could build them.”

“If this isn’t a buyer’s market, I don’t know what is.”

He said various economic and financial market fundamentals will support housing for the foreseeable future, helping to facilitate the inventory correction. These fundamentals include:

• The recession of record high energy prices from earlier this year
• Favorable mortgage rates and a strong outlook in that arena
• Mortgage credit is readily available and monetary policy has stabilized following a long run of upward rate adjustments
• Household income is strengthening as the economic expansion proceeds, perhaps lessening myriad affordable housing concerns
• Payroll employment growth is proceeding at a decent and sustainable pace

As long as the economy remains in good shape, Florida mortgage rates remain close to current levels, energy prices remain reasonable and sellers of new and existing homes adjust prices or offer incentives to fit current market realities, the rest of the housing market correction should be of limited depth and duration.

It’s projected that the bulk of the drop in sales and production will occur this year, with market activity stabilizing around mid-2007 and shifting upward again by late 2008.

“What that means to home buyers is that this situation won’t last forever. When the activity increases, inventory levels will be reduced and perhaps turned back to the builders’ favor,” Lendry said.

In the meantime, his advice for potential new buyers:

“If I were considering buying a home, I would do it now.”

In Gadsden County, Fla., last week, the official whose job is to manage growth — and who wants more of it — expressed frustration with the state agency that serves as a buffer against development plans that it believes would be detrimental, the Tallahassee Democrat reports.

“It’s just ludicrous and I’m fed up,” was how William McCord summed up his dealings with the Florida Department of Community Affairs.

His exasperation was a result of the DCA’s rejection of approved land-use changes in Gadsden County that would given the green light to construction of 1,112 new homes. DCA signaled its opposition before the county approved the changes, and the state agency wasn’t swayed by the local decision to move forward anyway.

McCord’s aggravation is symptomatic of tensions that are certain to persist in Northwest Florida. That’s because Panhandle counties that remained rural and sparsely populated while the rest of the Florida housing market grew like crazy have finally begun to experience the impacts of large-scale growth.

Similar tensions have surfaced in other Panhandle counties in recent years, with the St. Joe Co.’s evolution into a major real estate developer.

The so-called “Forgotten Coast” and points further inland are hardly forgotten anymore. Despite a recent downturn in much of the state, the housing market in the region has been robust. Just as Miami real estate and other downstate sectors proved in previous decades, however, growth can be both a blessing and a curse.

• On one hand, growth creates jobs and revenue, the life blood of a healthy economy and adequately funded public services.
• On the other hand, it puts additional strain on infrastructure such as roads and schools, while degrading the environment.

LEARNING FROM THE PAST

Florida has learned the hard way that to manage growth properly, its costs must be carefully considered before problems become so monumental that solutions are painfully expensive. Five years of record low Florida home loan rates led to an unprecedented real estate boom that is now leaving local governments scrambling on many levels.

Requirements in many counties now are forcing developers to help finance infrastructure improvements needed to support growth. Several downstate counties additionally impose impact fees.

Leon County has created an urban services area whose primary purpose is to encourage the densest growth within a boundary where services such as water and sewer lines already exist or could be extended inexpensively.

McCord, the Gadsden County growth management director, cited Tallahassee in his rhetorical blast aimed at DCA.

“[Agency officials] want to Tallahassee-ize the rest of the state and create Gadsden County in their own image,” he said.

McCord noted that Tallahassee property values have rocketed, and that many residents who might otherwise have purchased homes in Leon County instead bought in adjacent Gadsden or Wakulla, where prices are more affordable. Creating an urban services area, McCord contended, contributes to inflated housing costs for those who live there.

While there is an element of truth to that observation, affordable housing and growth management should not be considered separately. The problems are interconnected, and therefore the solutions must be.

Regional growth management strategies remain essential, and cooperation from state and local governments is vital. Today, Gadsden County does not face the same challenges that confront urban counties. It’s not hard to understand why some in Gadsden and throughout the Panhandle welcome additional revenue that growth fosters. Without it, they can’t hope to significantly improve the services they provide to citizens.

But it’s important just the same for local and state officials to learn from the mistakes of the past, when development elsewhere in Florida was virtually unchecked. The Panhandle’s future depends on balancing the blessings and challenges that growth brings, and in maintaining sustainable development for generations.