The Sunshine State is home to the hottest housing markets in the country and, in recent years, is experiencing one heck of a hurricane cycle. Florida has seen a tremendous amount of construction activity over the past year, with an average of more than 16 permits issued per 1,000 residents over the last 12 months. That's more than twice the pace of the nation overall, and amounts to nearly 280,000 issuances. In general, demand has kept up with supply, making most Florida markets lucrative for investors. However, the downside to being attractive to investors is that at some point they tend to move their money somewhere else.

Unlike primary residences in which homeowners most often live for a number of years and are slow to pick up and move out, investment properties add volatility to the market and are the first housing units to be “dumped” when signs of a market shift emerge. As a result, the probable rise in inventories in Florida over the coming months will be due in part to investors trying to “cash in” their investment properties and move on to other opportunities. Some may even have to wait a month or two to sell their properties instead of having a line of bids before a property even makes it to MLS (as has been the case in some areas during the past couple years). Suddenly in a panic, the edgier investors will fear they've missed the boat and drop prices to ensure a sale.

Will this sort of behavior cause a market-wide decline of prices in Florida? It's very unlikely, but we probably will see a few months of volatility in pricing sometime during 2006, as the market finds a new equilibrium and deals with an outflow of some of the investment monies that the robust market has soaked up. In addition, home buyers still looking for a primary residence may be able to get a great value if they can find an investment property whose owner is anxious to get their money out.

The other looming obstacle Florida has is what appears to be a cycle of severe hurricane seasons that may continue for a number of years. With a significant retiree population, inflow has been a vital contributor to the growth of many Florida markets. If the state is forced to endure two, three, or more hurricanes per season, it could put a serious damper on willingness to migrate there. As a grim upside, more storms mean more construction activity to replace lost structures, and the market for repairs and remodeling in Florida is sure to be significant.

But despite these challenges, Florida still has a lot going for it, as well. It is expected to remain an extremely popular tourist destination, and hardy Americans from all over the United States have shown willingness to endure an occasional storm to enjoy the Floridian lifestyle and become permanent residents. Like all housing markets, local conditions will fluctuate from area to area in the state, but overall, Florida should continue to be one of the national leaders in construction activity for years to come.