On Tuesday, Lakeland, Fla.-based Highland Homes officially starts selling houses from St. Cloud at Deer Creek, its first community in the Orlando market.

The builder’s owners, Bob and Joel Adams, have been planning their move into Orlando for two years, and they’ve relocated one of the company’s top sales counselors, Kristen Hash, there to oversee this community. Highland is selling homes at St. Cloud that start in the $130s, and will range from 1,200 to 2,400 square feet.

Highland Homes should start construction on its models at St. Cloud this month, and will take down lots as homes are sold. Bob Adams told BUILDER on Monday afternoon that he’s familiar with the south Orlando area, having built in St. Cloud and Kissimmee for 10 years with a different company he owned. “The market fits our culture,” he says, of building homes to appeal to price- and mortgage-sensitive entry-level buyers. He concedes that his company won’t make a ton of money on its affordable homes, and the profit it does generate requires “managing the daylights out of the business” by keeping operational overhead as low as possible. “When I look at the Builder 100 list every year, I don’t see any company that’s generating the dollars per employee that we do.”

Until recently, when it’s been taking down finished lots, Highland Homes would also control costs by developing land through various other entities.

Highland Homes’ expansion into Orlando comes at a time when the metro’s housing market, while still struggling, is showing faint signs of life. A recent report from AP-RE/MAX shows that home sales in Orlando rose 64% in July over the same month a year ago. Any market growth, though, is being driven by existing home sales. Through the first seven months of 2009, existing home sales were up 45% over the same period a year earlier to 12,223 units, according to the Orlando Regional Realtor Association.

In contrast, during the 12 months ended June 2009, Orlando’s housing starts fell 51.2% to 7,306 units, and its closings were off 42% to 11,812, according to a quarterly report from the market research firm Metrostudy. By the end of June the market had a 7.1-month supply of single-family inventory (including homes under construction and models), and a jaw-dropping 45,350 vacant developed lots, equal to a 74.5-month supply.

Orlando’s headache is still its rising foreclosure rate, which according to RealtyTrac jumped 37% in July over the same month a year ago to 7,248. The median price of existing homes inched up in July from June, but at $208,000 was still 35% below the July 2008 median. The median price for bank-owned sales in July was $84,500, and $139,500 for distressed sales, according to the Realtor association.

Adams says that the foreclosure problem in Orlando is no different from other Florida markets where Highland Homes builds. Competing against foreclosures, he explains, requires “creative mortgage financing.”

Despite indications that Florida’s population growth is stalling, Highland Homes continues to expand. A few days before it debuted at St. Cloud, it opened new models at its 150-lot community near Winter Haven’s airport called St. James Crossing, which features the same house plans and price ranges as its new Orlando community. Adams says his company plans to increase its presence in other areas in central Florida. However, he’s also fully aware that market conditions still aren’t ideal. “We’ve seen slight increases in MLS prices in Polk county,” which is Highland’s base. “But Polk issued 10,500 building permits in 2005; this year, we’ll be lucky if 1,200 are pulled.”

John Caulfield is senior editor for BUILDER magazine.

Learn more about markets featured in this article: Orlando, FL, Lakeland, FL.