FL Real Estate Situation Eerily Similar to 1920s, Hurricanes

[gatorcane]

I can easily see this happening again soon. I'm not trying to panic people but it is cleary a real possibility.

Florida Real Estate Bubble

The 1920’s, in America, were a time of great prosperity. Skilled and educated working Americans had jobs providing numerous fringe benefits, paid vacations and pensions. In addition, automobiles were becoming commonplace for the wealthy and middle class allowing cross country travel. This good fortune set the stage for the Florida real estate bubble.

Starting in 1920, many Americans became enamored by the materialistic and prosperous lifestyle of the time. During this time, the stock market was moving forward at an extremely fast pace. Many investors were becoming quite wealthy. Florida became a hot spot for these newly rich people, who didn’t enjoy the cold. Many whole families took vacations to Florida. It was at this point that tourism started booming and land prices were skyrocketing. Many astute investors took notice and started buying Florida real estate. The population in Florida was growing exponentially and housing couldn’t meet the demand. Florida became the “playground of the rich and famous”. Illegal casinos and drinking parlors became widespread in Miami.

At this point, almost anybody could invest in Florida, even without much money. Credit was plentiful and soon everybody in Florida was either a real estate investor or a real estate agent. In 1922, the Miami Herald became the heaviest newspaper in the world as a result of its humongous real estate advertisements. People in the North heard about the real estate prices “doubling and tripling”, causing a snowball effect. Capital was rapidly pumped into the real estate market. Whole golf communities were developed, such as Temple Terrace. Resorts and retirement communities were developed almost overnight. Mansions were sprawling in every area, as were swimming pools. As always, waterfront property was the most desirable. Florida was seen as a veritable Utopia.

Real estate prices quadrupled in less than one year. An elderly man invested $1,700 in property and by 1925 the property was worth over $300,000! It seemed you could do no wrong by just buying any property in Florida and become a millionaire. By 1925, real estate prices had become so exorbitant that buying land wasn’t affordable any longer. New investors failed to arrive and old investors started to sell. Panic arrived, as it always does, and the real estate market crashed. Prices kept moving downwards as heavily indebted investors tried to sell to avoid bankruptcy. In most cases, no buyers arrived, and the investors were bankrupt from the enormous mortgages.

To make matters even worse, a highly destructive hurricane ravaged South Florida in September 1926. The 125 mile an hour winds eventually turned Palm Beach County into swamp lands. After the storm, a huge tidal wave crashed upon the towns of Belle Glade and Moore Haven. Due to these horrible turn of events, over 13,000 homes were destroyed and 415 people died. Additionally, the arrival of the Mediterranean fruit fly obliterated the large citrus industry. It took years for Florida to fully recover, even through the highly prosperous time from 1925 to 1929. Florida was barely affected in the stock market crash of 1929 and the Great Depression, because of its poor financial state from the start.

Market crashes always occur in the same manner. Regardless of the market, the same simple psychological underpinnings are always at work. People who are caught up in a bubble never look back for historical examples. For this folly, they become paupers.

Source
http://www.stock-market-crash.net/florida.htm

[CHRISTY]

yes i have read about this also boca you are right!people in florida need to be ready for a real possibility that a floyd like storm next time may not turn.i think 2004 and 2005 are signs of very difficult times coming to us in the southeast.

[terstorm1012]

the fruit fly killing the citrus is eerie.

I say that because last time we were down in Miami, 2002 I think, my uncle was complaining that the county had come out and taken(cut down) all his citrus trees due to citrus canker.

[gatorcane]

According to Forbes:

The real estate boom in Florida in the 1920s collapsed partly because of the 1926 hurricane, which killed scores of people--but also because newspapers around the country started describing people who were buying land they had never seen, or that was under water.

http://www.forbes.com/home/realestate/2 ... me_ls.html

[gatorcane]

the fruit fly killing the citrus is eerie.

I say that because last time we were down in Miami, 2002 I think, my uncle was complaining that the county had come out and taken(cut down) all his citrus trees due to citrus canker.

Wow I didn't know that, strange indeed.

[windycity]

Wow! I beleive that very same thing can,or will,happen to Florida.Its only a matter of time. I was surprised when prices didnt fall after 04,after 05,come on!!! Would you want to live here,if you didnt ?? I love Florida,,but my care free demeaner goes away during storm season!

[gatorcane]

Wow! I beleive that very same thing can,or will,happen to Florida.Its only a matter of time. I was surprised when prices didnt fall after 04,after 05,come on!!! Would you want to live here,if you didnt ?? I love Florida,,but my care free demeaner goes away during storm season!

They are actually starting to fall - similar to what the artice says - The reason they haven't fallen so fast is like the article says - this is the place for the materialistic and the rich, we are blinded right now - South FL metro has not been hit by a major hurricane since Andrew but that affected a relatively small population compared to Miami metro and Ft. Lauderdale metro. People are complacent and feel that Wilma, Frances, and Jeanne, were bad, how could it get worse?

It could get ALOT worse. When that CAT 4 or CAT 5 hits from the East and causes billions in damage, prices will drop like a rock in Miami-Dade, Broward, and Palm Beach.

[Incident_MET]

For those of us in Central FL in 2004 the real estate market hardly flinched and kept going up at a frantic pace although we had the several severe hurr impacts (I was dumbfounded at the time). The low interest rates and cheap money were creating a frenzy. The numbers I have seen since about last August argue for a standstill in the market and there has been a trend of falling prices here. We will probably see a continued correction due to rising rates and a very excessive inventory. Definitely a buyers market right now.

[windycity]

i agree,if we grt hit again this year, prices will continue to fall. The market is soft right now,after this season ,well, time will tell.

[SouthFloridawx]

That is an awesome article thanks for the history.

[gatorcane]

For those of us in Central FL in 2004 the real estate market hardly flinched and kept going up at a frantic pace although we had the several severe hurr impacts (I was dumbfounded at the time). The low interest rates and cheap money were creating a frenzy. The numbers I have seen since about last August argue for a standstill in the market and there has been a trend of falling prices here. We will probably see a continued correction due to rising rates and a very excessive inventory. Definitely a buyers market right now.

Yes, the factors you describe sum it up. The hurricanes that have hit, have not caused the type of damage to drop the prices signficantly. Interesets rates and easy-access loans have won out. It will take a major, CAT 4 or CAT 5 into a metro area (e.g. Tampa Bay, Miami, etc) status to really do it.

That is an awesome article thanks for the history.

No problem

[gatorcane]

bump

[Ixolib]

Wow! I beleive that very same thing can,or will,happen to Florida.Its only a matter of time. I was surprised when prices didnt fall after 04,after 05,come on!!! Would you want to live here,if you didnt ?? I love Florida,,but my care free demeaner goes away during storm season!

ABSOLUTELY!!

In fact, I'm moving to Madeira Beach in about three weeks!! Florida is, without a doubt, the paradise of the U.S. mainland!!

[Deb321]

I sold my house in Port St lucie in Dec of 2005 and I know from my own experience the market had started to get soft. We listed our house in June and got hit by Wilma so we had to take it off the market until we made repairs again. We also ended up dropping our price by 20,000 dollars.

[Recurve]

Well, here's another thought: Florida in 2006 isn't Florida in 1925. This is now the fourth-most-populous state in the USA. The gross state product of Florida in 2003 was $550 billion. The '20s boom was fueled by land speculation, a lot of it on land that wasn't worth speculating on. The real estate boom now is from actual need for actual housing on actual dry land, of which they aren't making any more. People aren't buying swampland sight unseen. People do want to retire where it's warm, people want to live where it's warm, people want to vacation where it's warm and they can go deep-sea fishing and diving and drink margaritas by the beach in winter. People want second and third homes where it's warm. Florida is leading the nation in job creation. Florida has no state income tax, and Florida now has some of the toughest building codes in the country. Yeah, there's hurricanes, but there are no icestorms, no real tornadoes, no mudslides, no earthquakes, no volcanoes, no blizzards.

Insurance is a problem, affordable housing is a problem. But this is not a land-speculation bubble waiting to burst. This is a state bursting at the seams, and a little slowdown in the rate of growth will only stabilize things, not result in any kind of bust. For every person who leaves because they can't take hurricanes any more, there's 10 waiting to get here because they can't take winter anymore. When I can go sailing in January in Chicago, I'll move. And if you think Florida real estate is expensive, try to buy a nice house on Lake Shore Drive.

[windycity]

Ixolib, my sister lives in Maderia Bch,you will LOVE it there!!! It is a beautiful place to live, the people are very nice,AND its not at sea level! in fact, Seminole,5 minutes away,has areas that are 40 ft. above sea level! Good luck!

[Blown Away]

Well said Recurve!!!

[Jim Cantore]

yes i have read about this also boca you are right!people in florida need to be ready for a real possibility that a floyd like storm next time may not turn.i think 2004 and 2005 are signs of very difficult times coming to us in the southeast.

Then that Floyd like storm enters the gulf and we have a whole new problem

[JPmia]

Well, here's another thought: Florida in 2006 isn't Florida in 1925. This is now the fourth-most-populous state in the USA. The gross state product of Florida in 2003 was $550 billion. The '20s boom was fueled by land speculation, a lot of it on land that wasn't worth speculating on. The real estate boom now is from actual need for actual housing on actual dry land, of which they aren't making any more. People aren't buying swampland sight unseen. People do want to retire where it's warm, people want to live where it's warm, people want to vacation where it's warm and they can go deep-sea fishing and diving and drink margaritas by the beach in winter. People want second and third homes where it's warm. Florida is leading the nation in job creation. Florida has no state income tax, and Florida now has some of the toughest building codes in the country. Yeah, there's hurricanes, but there are no icestorms, no real tornadoes, no mudslides, no earthquakes, no volcanoes, no blizzards.

Insurance is a problem, affordable housing is a problem. But this is not a land-speculation bubble waiting to burst. This is a state bursting at the seams, and a little slowdown in the rate of growth will only stabilize things, not result in any kind of bust. For every person who leaves because they can't take hurricanes any more, there's 10 waiting to get here because they can't take winter anymore. When I can go sailing in January in Chicago, I'll move. And if you think Florida real estate is expensive, try to buy a nice house on Lake Shore Drive.

I agree. Florida is much different than the 1920s. However, one Cat4-5 storm in the heart of the metro area and there will be plenty of affordable housing. I have a suspicion that many people faced with rebuilding after one of those suckers and the cost of living down here now will just say give me my insurance and I am out of here. I have thought the same thing over the last couple of years about how nature can balance out bubbles and economic excess. Let's hope for the best because you can't do better than Florida's weather and economy year round. I love it down here!

[terstorm1012]

even though the citrus canker was eerie....hurricanes bring speculative booms in this day and age...recurve is right, FL will bounce back pretty darn quick from a major 'cane.

I heard story after story about people who drove down to the FL Gulf Coast after Ivan with boxes cash to buy people's ruined homes on the beach.

Most of your construction in South Dade is post-Andrew. Substantial parts of South Dade were still fairly rural in 1992. All houses now.