About 2 1/2 years ago, Mark Howerton and his wife bought a 1920s house in downtown Orlando for $117,500. They thought they had paid too much.

Then, last month, they sold the house themselves - in less than a week - for their asking price of $145,000, a profit of $27,500. Well, make that $27,300: They replaced the back door and painted a few rooms before they put it up for sale.

"It was the best investment I've ever made,"' said Howerton, who moved to Tallahassee so his wife could take a new job.

Long strangled by the supply of new houses in the suburbs, housing prices in metropolitan Orlando have crept along near the inflation rate for years. But with a shortage of houses on the market and a surplus of buyers, sellers are starting to realize some of the most dramatic profits in years.

In fact, houses in Orlando are expected to be among the fastest appreciating in the country during the next decade, according to a report released last month by DRIM/McGraw Hill. By 2010, house prices will increase 72 percent in Orange, Seminole, Osceola and Lake counties, the study stated. So, if predictions are true, median house prices will increase from $106,256 in 1999 to $182,782 in 2010.

OK, maybe it's not quite the same kind of profit Howerton and his wife made on their sale. But it's two or three times better than the 2 and 3 percent appreciation that has been typical for the Orlando area.

The study predicted that Orlando would be one of the top five fastest appreciating cities in the United States during the next 10 years. Other hot cities include Las Vegas, 89.7 percent; Wausau, Wis. 81.9 percent; and Naples, 75 percent.

The reasons for Orlando's predicted price boom are the job market, population growth and affordable prices, said DRI economist David Iaia. Orlando was second only to Memphis, Tenn, for having the most affordable prices in the country, according to a separate survey released last week by Chicago Title Corp.

Despite the findings by DRI/ McGraw Hill, not everyone agrees that Orlando-area homeowners will ride the wave of fast appreciation.

"I am extremely skeptical about that report," Orlando economist Hank Fishkind said. He thinks prices will continue to rise slowly because Central Florida has such a big supply of new housing.

A few areas, however, will continue to do well, Fishkind said. He cited older neighborhoods that are well away from new subdivisions, such as Winter Park, Maitland, downtown Mount Dora and downtown Orlando.

Orange County Property Appraiser Rich Crotty said that predicting property values is like forecasting the stock market. But, he added, the predictions could be true.

"When you compare Orlando housing to what's going on around the country and the level of growth we're expected to have here, I don't disagree," he said.

Sara Siegel, president of the Greater Orlando Association of Realtors, was doubtful that Orlando housing stock will escalate in value.

"We all know that this market is not going to last forever", said Siegel, a sales associate with Arvida Realty Services in Orlando.

For more than a year, the Orlando area has had less that half the number of houses listed for sale as it had four years ago, about 4,000 down from 10,000. Yet with so many buyers in the market, the number of sales has almost doubled.

The hottest area have top schools and close proximity to workplace, Siegel said. She said one of her clients looked for a year to find a suitable house in a certain school district.

The Greater Orlando Association of Realtors does not track neighborhood appreciation. But on Thursday the association prepared a report that shows where houses sell the fastest and fetch top prices.

Houses in Wekiva and Riverside in Seminole County and Sand Lake Hills in Orange all sold in about 40 davs - about half the average time it takes for a house to sell in metropolitan Orlando. And the neighborhoods where houses sold closest to their asking price are the Orange County neighborhoods of Southchase, Robinswood and Whisper Lakes.

Though sellers may benefit from rising prices, buyers will not. With so many service workers in the local economy, many prospective buyers will be unable to afford a house, Siegel said. And the home-buyers who rejoice at the news that their house will be worth more are the same people who will be unable to buy a bigger house as prices continue to climb, she added.

Howerton said he realizes the irony of his own lucrative house sale: "The sad part is that once we sold, we could never afford to live in that neighborhood again."

Because the tenant rents are used to make the mortgage payments, it is the tenants who are buying the house for the investor.

After our phone conversation, I kicked myself for failing to mention how rental house investors who eventually decide to sell can claim up to $250,000 (up to $500,000 for a married couple filing jointly) tax-free home-sale profits.

All it requires is for the owner to move into the rental house an aggregate two out of the past five years before its sale. The tax result is converting the house into a personal residence eligible for the $250,000/$500,000 principle residence sale exemption. In fact, this tax exemption can be used over and over by serial home sellers" once every 24 months.

 

Robert Bruss is a consumer real estate columnist based in San Francisco. His comments reflect a national perspective. Readers should investigate local conditions.