Some areas of Southwest Florida have seen steady price decreases over the first two months of 2006. This was after a real estate price run up that lasted more than two years.

Now real estate agents are seeing more hesitant buyers. Homes are staying on the market longer and prices are falling in some cases in order to encourage buyers to make offers.

In the Cape Coral area, for instance, one of the hottest markets in Southwest Florida in 2005, there has been a lot of new home construction. Prices escalated dramatically in 2005, and sellers were able to turn high-demand properties around in a few weeks.

But that started to change in December of '05. Now, according to real estate agent Joan Cutler, "there are between 400 and 700 price reductions going through every day." It is also becoming more difficult to sell older homes and vacant land because of the large selection of new homes that were built in the last couple of years.

According to Michael Schneider-Christians, another Cape Coral agent, about 400 listings are coming on stream for the Cape Coral area every day, but there are only about 100 pending sales per day. That can only mean a steadily growing inventory of homes, and a much more selective group of buyers. It is not unusual for the price of waterfront homes which were upwards of $1.2 million to have fallen back down under $1 million. That's a price reduction of as much as 20%.

Real estate agents like Schneider-Christians see this as a correction to some pretty unrealistic increases that took place in 2005. Many expect it will likely be at least two years before prices start to move upwards again.

One segment of the market that is not likely to change a lot is the under-$250,000 market. In some Florida counties that now represents the entry level, and there is not a lot of competition for newer houses selling for that price.

And real estate people also expect to see some spill-over effect from hot districts like Naples, Fort Myers, and Cape Coral to other counties further north where prices did not see such a dramatic increase in '05.

**Commercial Real Estate Remains Strong

Commercial real estate development typically lags behind residential. That's because permits have to be issued, environmental studies done, and extensive financing arrangements made. For instance real estate experts in the Cape Coral area expect a regional mall to be built, but it will probably take as many as 7 years to complete.

That can be a good thing for commercial real estate developers, because when residential growth slows down, commercial development is likely to play catch up. The influx of new residents that came with new home construction requires a build-up of retail and office space to service the new population.

The commercial sector in the last year saw a huge increase in construction in the Fort Myers and Cape Coral district. Permits were issued for 2,143 units in 2005 -- a 78 percent increase over 2004.

But experts think there's plenty of demand to absorb that kind of growth. Vacancy rates remained low across the board for commercial: 3.7 percent total with 2.8 percent for retail, 6.4 percent for office and 4 percent for industrial and flex space.

So if there is a marginal decline in residential construction in previously sizzling hot areas of Southern Florida, we can expect commercial construction to take up the slack.

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