What a difference a year makes! Twelve months ago, San Diego County, Palm Beach County, Fla., Phoenix, and Washington, D.C., were torrid housing markets. While housing starts and sales were well into double-digits in 2005, these markets have taken a big slide in 2006. Sales velocity is slowing, and inventory is piling up.

The five-year housing boom that swept the country is cooling, and it's clear that changes are coming fast, if they aren't already in place. Data from BIG BUILDER sister company Hanley Wood Market Intelligence (HWMI) shows clearly that the tough changes are already well entrenched. An easy sale no longer exists in these markets.

The three Sun Belt communities–San Diego County, Palm Beach County, and Phoenix–are magnets for active adults, and until recently, investors who had hoped to flip property quickly and make a tidy profit. The Washington, D.C., region is an arena of its own, fueled by growing numbers of jobs in the federal sector and in the defense industry that supports the war in Iraq.

Now operators in these markets, like many others, play out the dramas and struggles of a swift correction that is underway. Some economists say it will be well into 2007 before the housing market levels out, inventory is back to normal, and home buyers are not just looking for the cheapest deal around.

What's a big builder to do? First, they better understand today's new reality.

“A builder [is] well-advised to think about what the strategy would be to survive or succeed. The last thing you want to do is be left holding a McMansion you built assuming that someone would pay an outrageous amount of money for it,” says Joel Prakken, chairman of Macroeconomic Advisers, a St. Louis consulting firm specializing in housing.

Learn more about markets featured in this article: Washington, DC.