Land that could be bought for $800,000 could, within a year, be resold for $4 million before crashing back down to pre-boom levels. The prices were so inflated that to buy a condo-style property in 1926, you would’ve had to pay the same as you would have to pay in the 21st century for a luxury home in the guard-gated communities in Miami ($4,500,000) – without adjusting for inflation! (Related: Why Housing Market Bubbles Pop)
A Crash Without Any Stocks Involved
In the 1920s, the United States of America was chugging along like the British Empire of the 1700s, and it was only natural that people were beginning to believe such prosperity was infinite. But it wasn’t the stock market that was the victim of a bubble. It was the real estate market. As we saw, the original crash also involved an alternative asset – tulip bulbs – but the Florida Real Estate Craze was the first time property took center stage in a speculative bubble and subsequent crash (although it would not be the last).
Everyone Wants to Live Somewhere Warm
In 1920, Florida became the popular U.S. destination/residence for people who don’t like the cold. The population was growing steadily and housing couldn’t match the demand, causing prices to double and triple in some cases, which was not exactly unjustified at this point. But, news of anything doubling and tripling in price always attracts speculators. So, once people began pumping huge amounts of money into the real estate market it took off. Soon everyone in Florida was either a real estate investor or a real estate agent.
Unfortunately, the rules are the same whether you pay too much for a stock or for a piece of land: you have to make that much more to claim a profit. This did happen for awhile, and land prices quadrupled in less than a year. Eventually, however, there were no “greater fools” to buy the disgustingly overpriced land, and prices began to adjust ever so subtly. Speculators realized there was a limit to the boom, and began to sell their properties to solidify their profits while they could.
The Long Fall Down
Then everybody simultaneously saw the writing on the wall, and panic selling ensued. With thousands of sellers and very few buyers, prices came down with a sickening thud, twitched a bit, and then crawled down even lower. The impending crash was helped on by a hurricane in 1926, which introduced real estate speculators to the downsides of owning property in Florida. The real estate market essentially slumped straight into the Stock Market Crash of 1929 and the Great Depression. Oddly enough, the Florida real estate market was far from finished with boom and bust real estate cycle. That said, the future ones did not get to the same levels of frenzy as the 1920s bubble and bust, and the overall impact on the U.S. economy by then was significantly less.