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The Florida Real Estate Bubble….of the 1920’s!
By The 800lb Gorilla | July 31, 2007
Today I was doing my usual discernment of current affairs by looking for nuggets of information to share with you. After reading several articles of the usual obvious doom and gloom I begin to ponder if this real estate “bubble” happen before in South Florida’s history. To my surprise the answer was yes through out the entire state. This crash has happened prior to “The Great Depression” of the late 1920’s. If any business historians ever tried to warn the masses in our market, I am positive it fell on deaf ears due to the temper of greed and arrogance in a hot market.
I am a true South Floridian native “born under the sun,” and unfortunately, I never learned about this particular economic collapse in Florida’s past except the hardships from the hurricanes of 1926 and 1928 . Of course I had to do some research to learn more after wondering about real estate troubles in old South Florida. What is important about my findings in the past, adding it with our real estate issues today, and creating awareness for the future is for us to never bottom out again. Strike one! Strike two! Let us not strike out and be known as a regional industry of stupidity and professional idiots.
World renowned philosopher, George Santayana said it best in his most profound quote,
“Those who cannot remember the past are condemned to repeat it,”
from Reason in Common Sense, the first volume of his The Life of Reason. It is quite obvious we did not learn from the past. How many times does it take for you to stop walking barefoot on broken glass?
We must be responsible with what we are experiencing today. I understand many vultures in our business will just take the money and run. For those of us who are here to make a living with what we enjoy as our specialty we need to take responsibility and maybe re-institutionalize it. We may even need to lobby for legal parameters to stabilize our market for fair trade and practice. That’s right! We should be the ones lobbying for what must be done to help fix the errors which permitted our present issues than wait for the government to implement laws that will choke hold our industry. The government is going to do what is in the best interests of the major corporations first than the independent Realtor or broker unless alliances are born.
If you ever watch National Geographic on TV a tarantula, a scorpion, and even a viper is no match to a mob of army ants in The Jungle. An alliance of determined professionals in South Florida’s marketplace can be effective as a colony of army ants against your larger counterparts. As a collective or conglomerate, an alliance will create the majority representation over any corporations huddling together. If you do not in the near future, you may be victimized and shushed like a mom and pop store in the shadow of Wal-Mart.
Yes, I know there will be loopholes, but the parameters should be there to regulate over inflated appraised values; create a penalty cap for the number of flips in a 12 month period; and mandatory third party seminars for first time and sub 640 FICO score home buyers. These are my ideas to produce a steady real estate economy like Charlotte and Raleigh, North Carolina which has not experience a big boom like Florida, Nevada, and California. Look how profitable those cities’ markets are for realtors, mortgage brokers, and investors. Slow and steady their markets grew into a solid industry while South Florida shot up fast and may potentially crash even harder (see ABC News article In a Yearlong Housing Downslide, Charlotte Keeps Getting Better.) I am sure many of you have ideas of your own to reinvent and stabilize Florida’s real estate market. Your comments are welcomed.
Florida’s real estate bubble in the 1920’s of course was a different era than it is today, but the scenarios are very similar to what has transpired from the present boom which began around 2001. I will post a couple of links after the preceding full article below to give you alternative reports of this period. You will recognize how it did have a profound affect on the pre-Great Depression economy in Florida as our present bubble is impacting our economy today. Let’s begin with Wikipedia’s report on The Florida Land Boom of the 1920’s :
“The U.S. state of Florida’s first real estate bubble burst in 1925, leaving behind entire new cities and the remains of failed development projects such as Isola di Lolando in north Biscayne Bay. The preceding land boom shaped Florida’s future for decades and created entire new cities out of virgin swamp land that remain today. The story includes many parallels to the modern real estate boom, including the forces of outside speculators, hurricanes, easy credit access for buyers, and rapidly-appreciating property values.
By the 1920s, economic prosperity had set the conditions for a real estate bubble in Florida. Miami had an image as a tropical paradise and outside investors across the United States began taking an interest in Miami real estate. Due in part to the publicity talents of audacious developers like Carl G. Fisher of Miami Beach, famous for purchasing a huge lighted billboard in New York’s Times Square proclaiming “It’s June In Miami”, property prices rose rapidly on speculation and a land and development boom ensued.
By January 1925, investors were beginning to read negative press about Florida investments. Forbes magazine warned that Florida land prices were based solely upon the expectation of finding a customer, not upon any reality of land value. New York bankers and the IRS both began to scrutinize the Florida real estate boom as a giant sham operation. Speculators intent on flipping properties at huge profits began to have a difficult time finding new buyers. The inevitable bursting of the real estate bubble had begun.
On January 10, the Prinz Valdemar, a 241-foot, steel-hulled schooner, sank in the mouth of the turning basin of Miami harbor. The old Danish warship had been on its way to becoming a floating hotel.The Prinz Valdemar, capsized and blocked the port of Miami for several weeks in January of 1925, helping to usher in the end of the real estate boom.
The railroads, already strained by the burden of transporting both food and building supplies, had already begun raising shipping rates. When the sea route to Miami was blocked the city’s image as a tropical paradise began to crumble. In his book “Miami Millions”, Kenneth Ballinger wrote that the Prinz Valdemar’s capsize saved a lot of people a lot of money by revealing cracks in the Miami facade. “In the enforced lull which accompanied the efforts to unstopper the Miami Harbor,” he wrote, “many a shipper in the North and many a builder in the South got a better grasp of what was actually taking place here.”
In October 1925, in an effort to improve Florida’s clogged rail system, the railroad companies placed an embargo on all railway goods other than food, which further contributed to Florida’s skyrocketing cost of living. New buyers failed to arrive, and the property price escalation that fueled the land boom stopped. The days of Miami properties being bought and sold at auction as many as ten times in one day were over. The first Florida real estate bubble had burst.
The next year brought the 1926 Miami Hurricane, which drove audacious Biscayne Bay development projects such as Isola di Lolando into bankruptcy. The 1928 Okeechobee Hurricane and the Wall Street Crash of 1929 continued the catastrophic downward economic trend, and the Florida land boom was officially over as the Great Depression began. The depression and the devastating arrival of the Mediterranean fruit fly a year later destroyed both the tourist and citrus industries upon which Florida depended. In a few short years, an idyllic tropical paradise had been transformed into a bleak, humid remote area with few economic prospects. Florida’s economy would not recover until World War II.”
I hope you have enjoyed the following article and its interesting parallels relative to today. As you can see a facade is simply smoke and mirrors as our industry was judged back then. We remain with the same scrutiny of selling another sham after our 21st century boom has passed. Can we dust off the perception of South Florida real estate industry as a hot market facade when the market picks up the pace? Or can we reinvent our image with an identity as a steady, healthy, solid, and profitable industry that maintains an exponential value for years to come? There are more historical facts documented online for your studying pleasure so we may never repeat history as fools. Enjoy the following links:
The Florida Real Estate Bubble by www.stock-market-crash.net.
Crashes:The Florida Real Estate Craze by www.investopedia.com, A Forbes media company.
The Great Florida Land Boom by www.floridahistory.org.
South Florida: A Brief History by www.historical-museum.org.
The Tropical Twenties by www.americanheritage.com.
Topics: Editorial, Misc, Mortgages, Real Estate |
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