In part 4 of our discussion of bubbles and crashes. "This has all happened before and it will happen again," is a re-occurring theme in the re-imagined version of the TV series Battlestar Galactica, now in it's fourth and final season. We continue our discussion of history repeating itself in regards to bubbles and crashes.
Just like the British Empire of the 1700's the Unites States was chugging along economically during the 1920's. Year after year constant prosperity continued hence giving the decade it's nickname the "Roaring Twenties". It was no wonder people thought this level of prosperity was infinite. But in 1926 it was real estate market that suffered a crash before the Stock Market crash of 1929.
Land that was bought for $800,000 could later be sold a year later for $4,000,000. In 1926 prices were so inflated that to buy a condo style property you would have to pay the same as you would now for a luxury home in a guard gated community in Miami for $4,500,000 without adjusting for inflation. Sounds a little bit like the real estate boom we just went through doesn't it.
Florida had become a popular U.S. destination spot as well as place to reside in 1920 especially for those who loved warm weather. Florida's population began to grow rapidly and in turn so did housing. The housing demand couldn't keep up with the population and soon housing prices started to double and eventually tripled. And as we have seen in our other posts and you will see in future posts anything that doubles and triples quickly people dive right in.
Money was being pumped into Florida like crazy and soon people were either a real estate investor or a real estate agent.But whether you pay to much for a share of stock or a piece of land you have to make that much more to make a profit. Soon land prices quadrupled and soon there were no more fools to pay for the over inflated real estate prices and prices began to adjust accordingly. Soon people realized there was a limit to the boom and began to sell their land in order to maintain their profits.
Then as usual, people began to see the hand writing on the wall and panic selling ensued. With thousands of sellers and few buyers the real estate market in Florida came crashing down.
Next Part 5: The Great Depression.
[This post is written and copyrighted by Financial Elite (http://financialelite.blogspot.com/ ).]
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