The Florida Real Estate Craze

The Florida Real Estate Craze

The bulbs and bubbles are, admittedly, ancient history. Could the same sort of thing happen in sophisticated modern times?

Let’s turn some recent and familiar events from our own past and see. America, the land of opportunity, had its turn in the 1920s. And given its emphasis on freedom and growth, it produced two of the most spectacular booms and two of the loudest crashes civilization has ever known.

Conditions could not have been more favorable for speculation crazes. The country had been experiencing unrivaled prosperity. One could not but have faith in American business, and as Calvin Coolidge said, “The business of America is business”.

Businessmen were likened to religious missionaries and almost deified. Such analogies were even made in the opposite direction. Bruce Barton, of the New York advertising agency Batten, Barton, Durstine and Osborn, wrote in The Man Nobody Knows that Jesus was “the first businessman”, and his parables were “the most powerful advertisements of all time”.

The euphoric mood of optimism and faith in business that prevailed in the twenties led to widespread enthusiasm about real estate and the stock market. It would appear only natural that American, having conquered an entire continent, would succumb to real estate booms. One of the greatest centered on Florida in the middle 1920s. The climate was just right. The population was steadily growing and housing was in short supply. Land values began increasing rapidly. Stories of investment doubling and tripling attracted speculators from all over the country. Easy credit terms added fuel to the speculative frenzy. “This market has no downside risk”, the land speculators opined, as Dutchmen undoubtedly said to each other about the tulip-bulb market in an earlier time.

Florida Real Estate Craze. Photo by Elena

There are reports of Palm Beach land bought for 800, 000 dollars in 1923, subdivided and resold in 1924 for 1, 5 million. By the following year, the same land sold at 4 million dollars. At the top of the boom, there were 75, 000 real estate agents in Miami, one third of the entire population of the city.

Inevitably, the boom ended, as do all speculative crazes. By 1926, new buyers could no longer be found, and prices softened. Then the speculators dumped their holdings on the market and a complete collapse ensued.

With this Florida experience, one would have thought that investors would avoid a similar misadventure on Wall Street. But Florida was only a regional prelude to what came next. Beginning in 1928, stock-market speculation became a national pastime. From early March 1928 through early September 1929, the market’s percentage increase equaled that of the entire period from 1923 through early 1928. The price rises for the major industrial corporations sometimes reached 10 or 15 points per day.

Sources:

• Burton G. Malkiel. A Random Walk Down Wall Street, including a life-cycle guide to personal investing. First edition, 1973, by W.W. Norton and company, Inc.