Physical Water Surface

I think the reason for this problem is that in the first frame when the object is spawned, the buoyancy equations are initialized and this goes wrong when the z coordinate is not very close to zero. The initialization is a bit tricky because buoyancy is a recursive algorithm, it uses some values calculated in the last frame. In the frame when the object is spawned, there is no value from the last frame and the large force on the objects that shots them up in the sky seems to be a side effect of that. I will fix this in the next update. Does it work for you to put the water plate at Z=0 for now?
And can you confirm that the objects are floating normally on the water surface after they fall down again from the sky? This should be the case because detection of the Z coordinate of the water plane is already built in.