September 06, 2007

Florida Housing 1920s Redux: History repeating in Florida and Lessons from the Roaring 20s.

History has a mysterious way of creeping up on those that fail to study it. Somehow, with all the talking heads going crazy, you would think this housing market has no parallel in history. When you hear that the national median home price has never gone down there is always the caveat of “since the Great Depression.” I’ve written 3 articles about the Great Depression (letter from a lawyer, letter from a president of a bank, and 3 main reasons why this bubble is worse) highlighting eerie similarities of this credit bubble to the Roaring 20s. Keep in mind during the 1920s the nation was engulfed with Coolidge prosperity and all things business were here to stay. In fact, today we are going to examine a few paragraphs from an amazing book by Frederick Lewis Allen called Only Yesterday written in 1931 which examines the decade of the 1920s in great detail. A reader of this blog recommended this book sometime ago and I'm glad I had the chance to read this in depth analysis of the 1920s from an author with an uncanny ability to retell history. Dispute it all you want but there is a chapter in the book called Home, Sweet Florida that if one didn’t see the date, could be published in the Miami Herald dated 2007.

Let us compare and contrast the past with our current housing debacle:

“There was nothing languorous about the atmosphere of tropical Miami during that memorable summer and autumn of 1925. The whole city had become one frenzied real-estate exchange. There were said to be 2,000 real-estate offices and 25,000 agents marketing house-lots or acreage. The shirt-sleeved crowds hurrying to and fro under the widely advertised Florida sun talked of binders and options and water-frontages and hundred thousand-dollar profits; the city fathers had been forced to pass an ordinance forbidding the sale of property in the street, or even the showing of a map, to prevent inordinate traffic congestion. The warm air vibrated with the clatter of riveters, for the steel skeletons of skyscrapers were rising to give Miami a skyline appropriate to its metropolitan destiny. Motor-busses roared down Flagler Street, carrying "prospects" on free trips to watch dredges and steam-shovels converting the outlying mangrove swamps and the sandbars of the Bay of Biscayne into gorgeous Venetian cities for the American homemakers and pleasure-seekers of the future. The Dixie Highway was clogged with automobiles from every part of the country; a traveler caught in a traffic jam counted the license-plates of eighteen state among the sedans and flivvers waiting in line. Hotels were overcrowded. People were sleeping wherever they could lay their heads, in station waiting- rooms or in automobiles. The railroads had been forced to place an embargo on imperishable freight in order to avert the danger of famine; building materials were now being imported by water and the harbor bristled with shipping. Fresh vegetables were a rarity, the public utilities of the city were trying desperately to meet the suddenly multiplied demand for electricity and gas and telephone service, and there were recurrent shortages of ice.”

So first we must realize that real estate frenzies have occurred in the past. In addition, the idea of people waiting to bid on property not currently built occurred during the 1920s in Florida. And all those high-rise condos waiting to come online in 2008 or 2009? Florida again seems to be ground zero of the real estate frenzy. Even the out of town investors going zero down on a mortgage for a property that isn’t even built is something that happened long ago. Reminds many people of the multiple license plates in Arizona a few years ago of people extending their credit to buy a pre-fab construction only to flip it a few months down the road. Like any boom, this didn’t happen overnight back then either. What events led to Florida being the prime location? Let us take a look:

“For this amazing boom, which had gradually been gathering headway for several years but had not become sensational until 1924, there were a number of causes. Let us list them categorically.

1. First of all, of course, the climate-Florida's unanswerable argument.

2. The accessibility of the state to the populous cities of the Northeast-an advantage which Southern California could not well deny.

3. The automobile, which was rapidly making America into a nation of nomads; teaching all manner of men and women to explore their country, and enabling even the small farmer, the summer-boarding-house keeper, and the garage man to pack their families into flivvers and tour southward from auto-camp to auto-camp for a winter of sunny leisure.

4. The abounding confidence engendered by Coolidge Prosperity, which persuaded the four-thousand-dollar-a-year salesman that in some magical way he too might tomorrow be able to buy a fine house and all the good things of earth.

5. A paradoxical, widespread, but only half-acknowledged revolt against the very urbanization and industrialization of the country, the very concentration upon work, the very routine and smoke and congestion and twentieth- century standardization of living upon which Coolidge Prosperity was based. These things might bring the American businessman money, but to spend it he longed to escape from them-into the free sunshine of the remembered countryside, into the easy-going life and beauty of the European past, into some never-never land which combined American sport and comfort with Latin glamour-a Venice equipped with bathtubs and electric iceboxes, a Seville provided with three eighteen-hole golf courses.

6. The example of Southern California, which had advertised its climate at the top of its lungs and had prospered by so doing: why, argued the Floridians, couldn't Florida do likewise?

7. And finally, another result of Coolidge Prosperity: not only did John Jones expect that presently he might be able to afford a house at Boca Raton and a vacation-time of tarpon-fishing or polo, but he also was fed on stories of bold business enterprise and sudden wealth until he was ready to believe that the craziest real-estate development might be the gold-mine which would work this miracle for him.

Crazy real-estate developments? But were they crazy? By 1925 few of them looked so any longer. The men whose fantastic projects had seemed in 1923 to be evidences of megalomania were now coining millions: by the pragmatic test they were not madmen but-as the advertisements put it- inspired dreamers. Coral Gables, Hollywood-by-the-Sea, Miami Beach, Davis Islands-there they stood: mere patterns on a blue-print no longer, but actual cities of brick and concrete and stucco; unfinished, to be sure, but growing with amazing speed, while prospects stood in line to buy and every square foot within their limits leaped in price.”

Did someone write this yesterday? The book title is still accurate even though 1931 is a distant memory. The same arguments used in 1925 are being used in the current marketplace regarding housing. First, the main argument for Florida and Southern California is the weather. We’ve dubbed it the sunshine tax. So this argument for pumping ludicrous mortgages isn’t something new. Next, we have the argument of proximity to locations and centers of employment. Another argument used by many housing pundits pushing these overpriced units. None of these things changed (after all we still have the sun) and this is nearly 100 years ago. Subdivide and conquer seems to be the mantra in real estate booms. The author makes a unique point about the primal desire for families to reunite with a more tranquil life at the cost of working like a maniac to afford the mortgage on a home in an urban area. A Catch-22 that many families in 2007 are facing. And the marketing and advertising tactics haven’t changed. Have you seen the current ads for Florida housing? “Your home with the tranquility of Venice” or “Come escape to your own private Paris.” What they are implying is that your subdivided cookie cutter home is somehow similar to condensed apartment style living from Europe. Last time I checked not many Parisians or Italians had 2 car garages to support monster Hummers and Expeditions. So this yearning for European style tranquility is highly misplaced because even Europeans do not live this way. But the underlying implication is “you too can get away from the stressful congested freeways and 12 hour work days in the city” at least for a few hours in your private palace even though you have to work like a maniac to afford your exotic-high-flying-zero-down mortgage. But did people get caught up in the frenzy like this current boom?

“Yes, the public bought. By 1925 they were buying anything, anywhere, so long as it was in Florida. One had only to announce a new development, be it honest or fraudulent, be it on the Atlantic Ocean or deep in the wasteland of the interior, to set people scrambling for house lots. "Manhattan Estates" was advertised as being "not more than three fourths of a mile from the prosperous and fast-growing city of Nettie"; there was no such city as Nettie, the name being that of an abandoned turpentine camp, yet people bought. Investigators of the claims made for "Melbourne Gardens" tried to find the place, found themselves driving along a trail "through prairie muck land, with a few trees and small clumps of palmetto," and were hopelessly mired in the mud three miles short of their destination. But still the public bought, here and elsewhere, blindly, trustingly-natives of Florida, visitors to Florida, and good citizens of Ohio and Massachusetts and Wisconsin who had never been near Florida but made out their checks for lots in what they were told was to be "another Coral Gables" or was "next to the right of way of the new railroad" or was to be a "twenty-million-dollar city." The stories of prodigious profits made in Florida land were sufficient bait. A lot in the business center of Miami Beach had sold for $800 in the early days of the development and had resold for $150,000 in 1924. For a strip of land in Palm Beach a New York lawyer had been offered $240,000 some eight or ten years before the boom; in 1923 he finally accepted $800,000 for it; the next year the strip of land was broken up into building lots and disposed of at an aggregate price of $1,500,000; and in 1925 there were those who claimed that its value had risen to $4,000,000. A poor woman who had bought a piece of land near Miami in 1896 for $25 was able to sell it in 1925 for $150,000. Such tales were legion; every visitor to the Gold Coast could pick them up by the dozen; and many if not most of them were quite true-though the profits were largely on paper. No wonder the rush for Florida land justified the current anecdote of a native saying to a visitor, "Want to buy a lot?" and the visitor at once replying, "Sold."

Greed has an interesting way of coming back into the mainstream. As the author points out, even places that were 15, 20, or 30 miles away from the prime locations were selling like crazy simply because the real estate tornado frenzy brought these places into the fold. Think of the Real Homes of Genius, the Inland Empire, Arizona, Nevada, and Florida. One need only look at the current headlines of current Florida housing to find similar parallels from the above. Why are housing pundits so quick to dismiss history without taking a critical eye of what happened in the past? Do they somehow think they are above the narrative of history? Is this time really different? They want you to believe that they have found the new calculus of housing success. Well as you are seeing, this bust is playing out exactly like it did almost 100 years ago. To continue with the chapter, it appears that speculation was rampant just like it was during our boom:

“Speculation was easy-and quick. No long delays while titles were being investigated and deeds recorded; such tiresome formalities were postponed. The prevalent method of sale was thus described by Walter C. Hill of the Retail Credit Company of Atlanta in the Inspection Report issued by his concern: "Lots are bought from blueprints. They look better that way .... Around Miami, subdivisions, except the very large ones, are often sold out the first day of sale. Advertisements appear describing the location, extent, special features, and approximate price of the lots. Reservations are accepted. This requires a check for 10 per cent of the price of the lot the buyer expects to select. On the first day of sale, at the promoter's office in town, the reservations are called out in order, and the buyer steps up and, from a beautifully drawn blueprint, with lots and dimensions and prices clearly shown, selects a lot or lots, gets a receipt in the form of a `binder' describing it, and has the thrill of seeing `Sold' stamped in the blue-lined square which represents his lot, a space usually fifty by a hundred feet of Florida soil or swamp. There are instances where these first-day sales have gone into several millions of dollars. And the prices! ... Inside lots from $8,000 to $20,000. Water-front lots from $15,000 to $25,000. Seashore lots from $20,000 to $75,000. And these are not in Miami. They are miles out-ten miles out, fifteen miles out, and thirty miles out."

Wait. Did they say people needed 10 percent down? We out did the speculative bubble of the 1920s since we cut out that measly 10 percent down and went zero down and sometimes people got cash-back at closing! This reminds one of sales even in Orange County California where new subdivisions sold out the first day. People waited in line for days to get on a list for the chance to purchase a home at a hyper inflated price. Looking back people must feel that they were waiting in line to be punched in the face by Mike Tyson. And what about the metal cranes covering the Florida skyline? Many of these units won’t hit the market until 2008 and 2009 at the peak of the bubble decline. Fascinating how greed can overtake an entire population. And lets be honest, how many of these people actually had visions of buying a Miami condo to live and raise a family for an entire generation? I would venture that the percent can be counted on one hand. What kind of rhetoric was used to pump these new paradise resorts? Let us take a look:

“Steadily, during that feverish summer and autumn of 1925, the hatching of new plans for vast developments continued. A great many of them, apparently, were intended to be occupied by what the advertisers of Miami Beach called "America's wealthiest sportsmen, devotees of yachting and the other expensive sports," and the advertisers of Boca Raton called "the world of international wealth that dominates finance and industry . . . that sets fashions . . . the world of large affairs, smart society and leisured ease." Few of those in the land-rush seemed to question whether there would be enough devotees of yachting and men and women of leisured ease to go round.

Everywhere vast new hotels, apartment houses, casinos were being projected. At the height of the fury of building a visitor to West Palm Beach noticed a large vacant lot almost completely covered with bath- tubs. The tubs had apparently been there some time; the crates which surrounded them were well weathered. The lot, he was informed, was to be the site of "One of the most magnificent apartment buildings in the South"-but the freight embargo had held up the contractor's building material and only the bathtubs had arrived! Throughout Florida re- sounded the slogans and hyperboles of boundless confidence. The advertising columns shrieked with them, those swollen advertising columns which enabled the Miami Daily News, one day in the summer of 1925, to print an issue of 504 pages, the largest in newspaper history, and enabled the Miami Herald to carry a larger volume of advertising in 1925 than any paper anywhere had ever before carried in a year. Miami was not only "The Wonder City," it was also "The Fair White Goddess of Cities," "The World's Playground," and "The City Invincible." Fort Lauderdale became "The Tropical Wonderland," Orlando "The City Beautiful," and Sanford "The City Substantial."

Location, location, location. Speculation, speculation, speculation. I was going through this weekend’s LA Times and an inordinate amount of space is given to real estate advertisements. In fact, most of the ads are housing related. For example, you have your multiple electronic stores telling you how to fill up every nook in cranny of your place with 60 inch plasma TVs and state of the art refrigerators that make ice out of thin air. All for 0 percent financing over 24 months. And then we have all the ads about majestic beds and sofas that are fit for King Tut himself. Even the King didn’t have access to American Express! And then we have the housing ads. I was looking at some condo ads in Florida and you would think that you are buying the most fantastic, stupendous, amazing, fabulous, and gorgeous 1,200 square foot piece of land in the entire universe. You may want to buy stock in Thesaurus publishers with the amount of adjectives these advertising and marketing agency use for housing. With the benefit of foresight, we know how the bubble of the 1920s ended but we are still uncertain how this current market will unfold. As humans, we like hearing things in a narrative form. If A happens then B happens which obviously leads to C happening. We are terrible at constructing real-time narratives because we are living the moment and have a hard time stepping back and examining the landscape from a bird’s eye view. Call it existential living. For the sake of forecasting, how did the 1920s Florida housing market end and can we learn anything from it?

“Perhaps the boom was due for a "healthy breathing-time…

As a matter of fact, it was due for a good deal more than that. It began obviously to collapse in the spring and summer of 1926. People who held binders and had failed to get rid of them were defaulting right and left on their payments. One man who had sold acreage early in 1925 for twelve dollars an acre, and had cursed himself for his stupidity when it was resold later in the year for seventeen dollars, and then thirty dollars, and finally sixty dollars an acre, was surprised a year or two afterward to find that the entire series of subsequent purchases was in default, that he could not recover the money still due him, and that his only redress was to take his land back again. There were cases in which the land not only came back to the original owner, but came back burdened with taxes and assessments which amounted to more than the cash he had received for it; and furthermore he found his land blighted with a half-completed development.

Just as it began to be clear that a wholesale deflation was inevitable, two hurricanes showed what a Soothing Tropic Wind could do when it got a running start from the West Indies.

No malevolent Providence bent upon the teaching of humility could have struck with a more precise aim than the second and worst of these Florida hurricanes. It concentrated upon the exact region where the boom had been noisiest and most hysterical-the region about Miami. Hitting the Gold Coast early in the morning of September 18, 1926, it piled the waters of Biscayne Bay into the lovely Venetian developments, deposited a five-masted steel schooner high in the street at Coral Gables, tossed big steam yachts upon the avenues of Miami, picked up trees, lumber, pipes, tiles, debris, and even small automobiles and sent them crashing into the houses, ripped the roofs off thousands of jerry-built cottages and villas, almost wiped out the town of Moore Haven on Lake Okeechobee, and left behind it some four hundred dead, sixty-three hundred injured, and fifty thousand homeless. Valiantly the Floridians insisted that the damage was not irreparable; so valiantly, in fact, that the head of the American Red Cross, John Barton Payne, was quoted as charging that the officials of the state had "practically destroyed" the national Red Cross campaign for relief of the homeless. Mayor Romfh of Miami declared that he saw no reason "why this city should not entertain her winter visitors the coming season as comfortably as in past seasons." But the Soothing Tropic Wind had had its revenge; it had destroyed the remnants of the Florida boom.

By 1927, according to Homer B. Vanderblue, most of the elaborate real-estate offices on Flagler Street in Miami were either closed or practically empty; the Davis Islands project, "bankrupt and unfinished," had been taken over by a syndicate organized by Stone & Webster; and many Florida cities, including Miami, were having difficulty collecting their taxes. By 1928 Henry S. Villard, writing in The Nation, thus described the approach to Miami by road: "Dead subdivisions line the highway, their pompous names half-obliterated on crumbling stucco gates. Lonely white-way lights stand guard over miles of cement side- walks, where grass and palmetto take the place of homes that were to be .... Whole sections of outlying subdivisions are composed of unoccupied houses, past which one speeds on broad thoroughfares as if traversing a city in the grip of death." In 1928 there were thirty-one bank failures in Florida; in 1929 there were fifty-seven; in both of these years the liabilities of the failed banks reached greater totals than were recorded for any other state in the Union. The Mediterranean fruitfly added to the gravity of the local economic situation in 1929 by ravaging the citrus crop. Bank clearings for Miami, which had climbed sensationally to over a billion dollars in 1925, marched sadly downhill again:






And those were the very years when elsewhere in the country prosperity was triumphant! By the middle of 1930, after the general business depression had set in, no less than twenty-six Florida cities had gone into default of principal or interest on their bonds, the heaviest defaults being those of West Palm Beach, Miami, Sanford, and Lake Worth; and even Miami, which had a minor issue of bonds maturing in August, 1930, confessed its inability to redeem them and asked the bondholders for an extension.

The cheerful custom of incorporating real-estate developments as "cities" and financing the construction of all manner of improvements with "tax-free municipal bonds," as well as the custom on the part of development corporations of issuing real-estate bonds secured by new structures located in the boom territory, were showing weaknesses unimagined by the inspired dreamers of 1925. Most of the millions piled up in paper profits had melted away, many of the millions sunk in developments had been sunk for good and all, the vast inverted pyramid of credit had toppled to earth, and the lesson of the economic falsity of a scheme of land values based upon grandiose plans, preposterous expectations, and hot air had been taught in a long agony of deflation.

For comfort there were only a few saving facts to cling to. Florida still had her climate, her natural resources. The people of Florida still had energy and determination, and having recovered from their debauch of hope, were learning from the relentless discipline of events. Not all Northerners who had moved to Florida in the days of plenty had departed in the days of adversity. Far from it: the census of 1930, in fact, gave Florida an increase in population of over 50 per cent since 1920-a larger increase than that of any other state except California-and showed that in the same interval Miami had grown by nearly 400 per cent. Florida still had a future; there was no doubt of that, sharp as the pains of enforced postponement were. Nor, for that matter, were the people of Florida alone blameworthy for the insanity of 1925. They, perhaps, had done most of the shouting, but the hysteria which had centered in their state had been a national hysteria, enormously increased by the influx of outlanders intent upon making easy money”.

And so the boom ended in a spectacular fashion. The peak hit in 1925 and steadily declined through the Great Depression. And as the author points out, this was during a time when the country was supposedly prospering. Doesn’t this remind you of the current administration touting our record low unemployment rate and record high home ownership rate? You would think we are in the apex of financial success with a minor bump in housing. But markets in Florida and California are hitting massive defaults. Keep in mind we are only in stage one of this housing bear market. Looking at the past as a reference, we know that there will be pain in the next few years. Even if Bush and others are pushing for income relief on debt forgiveness, this means society will carry the burden. After all, if someone bought a $500,000 home and it was foreclosed and sold for $450,000 – shouldn’t the lender and buyer shoulder some responsibility? We will be heading down this moral hazard road for months.

Even looking at current default rates in Southern California, many people in default have loans that are 2 years or younger. Now either the lender did a horrible job looking at the buyer's financial situation in which they should be liable, or a buyer speculated either knowingly or unknowingly. I have empathy for a family that was conned from an FHA fixed mortgage into a $200,000 subprime mortgage at 10 percent with prepayment penalties. No reason for this except higher commissions. But a person buying a $500,000 home trying to flip it for $600,000? See why I have an issue raising the caps? Most people think the money will evaporate like some sort of Vegas magic act. Yet the public as a whole, even those who didn’t participate in this speculating frenzy, will be on the hook if no one directly involved is willing to shoulder the responsibility of gambling [speculating] in a housing bubble. How about the lender, home owner, and the Wall Street players shoulder some of the debt forgiveness instead of asking for a government handout? Why isn't anyone going after the MBS market or the hedge funds? After all, some one did buy these exotic mortgages. So what are some other viable solutions? Lenders can modify terms on 30 year mortgages and extend the duration or drop rates; yet this would suppose that buyers actually bought homes to live in for the longterm. Speculate together, pay together. If you can cut through the green tangled vines of bail out rhetoric, the bottom line is someone isn't happy because the music stopped and they are left standing with no chair.

Back to the Florida boom and bust, it would be wrong to think that the real estate fever in the 1920s was only specific to Florida. Other cities had similar booms as well:

“The final phase of the real-estate boom of the nineteen-twenties centered in the cities themselves. To picture what happened to the American skyline during those years, compare a 1920 airplane view of almost any large city with one taken in 1930. There is scarcely a city which does not show a bright new cluster of skyscrapers at its center. The tower building mania reached its climax in New York-since towers in the metropolis are a potent advertisement-and particularly in the Grand Central district of New York. Here the building boom attained immense proportions, coming to its peak of intensity in 1928. New pinnacles shot into the air forty stories, fifty stories, and more; between 1918 and 1930 the amount of space available for office use in large modern buildings in that district was multiplied approximately by ten. In a photograph of uptown New York taken from the neighborhood of the East River early in 1931, the twenty most conspicuous structures were all products of the Post-war Decade. The tallest two of all, to be sure, were not completed until after the panic of 1929; by the time the splendid shining tower of the Empire State Building stood clear of scaffolding there were apple salesmen shivering on the curbstone below. Yet it was none the less a monument to the abounding confidence of the days in which it was conceived.

The confidence had been excessive. Skyscrapers had been overproduced. In the spring of 1931 it was reliably stated that some 17 per cent of the space in the big office buildings of the Grand Central district, and some 40 per cent of that in the big office buildings of the Plaza district farther uptown, were not bringing in a return; owners of new skyscrapers were inveigling business concerns into occupying vacant floors by offering them space rent-free for a period or by assuming their leases in other buildings; and financiers were shaking their heads over the precarious condition of many realty investments in New York. The metropolis, too, had a future, but speculative enthusiasm had carried it upward a little too fast.”

Compare this to the current metal cranes that stand up like a Brontosaur head in the middle of many metro cities. You see them in San Diego, Miami, and Orange County. Take a plane over Arizona and Nevada and you’ll see a jigsaw of subdivided land and spectacular urban sprawl. Are we growing this fast? Looking at population statistics it doesn’t seem that the building is in proportion to our growing demand for housing; we may have overbuilt a tad bit. Considering that many baby-boomers are looking to downsize, many homes should be coming online in the next 5 to 10 years simply because of the natural occurrence in the shift of demographics. Many will downsize and retire to less urban areas, thus creating more inventory.

A question many are wondering is "will there be another bubble after this one?" Considering we went from a technology bubble to a housing bubble, I think we’ve had enough for two decades. The cost of owning a home in certain areas, as many families are realizing, comes at too high of a cost. A society can only prosper so long via debt spending. So what happened after the boom in Florida?

“After the Florida hurricane, real-estate speculation lost most of its interest for the ordinary man and woman. Few of them were much concerned, except as householders or as spectators, with the building of suburban developments or of forty-story experiments in modernist architecture. Yet the national speculative fever which had turned their eyes and their cash to the Florida Gold Coast in 1925 was not chilled; it was merely checked. Florida house-lots were a bad bet? Very well, then, said a public still enthralled by the radiant possibilities of Coolidge Prosperity: what else was there to bet on? Before long a new wave of popular speculation was accumulating momentum. Not in real-estate this time; in something quite different. The focus of speculative infection shifted from Flagler Street, Miami, to Broad and Wall Streets, New York. The Big Bull Market was getting under way.”

Maybe we will finally see the decade long obsession with real estate go away. However after the boom in the 1920s, people decided to go back and gamble on US Steel, General Electric, General Motors, Woolworth, and Radio. Keep in mind that the economy didn’t shift gears over night. From the peak in September of 1929 it took approximately 3 years to hit bottom in 1932. Will we have another Great Depression? Probably not since there are many other factors in our current economy that are vastly different. However, a recession and a deep one at that, is almost a foregone conclusion.

I highly recommend that you read Only Yesterday by Frederick Lewis Allen because it’ll give you a fascinating and enlightening view of the 1920s and how an important defining time for America still impacts us today. We will always have booms and busts, otherwise known by a nicer name, the business cycle.

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audax said...

Read the description of the President (I think about page 30) and see if it doesn't make you double take: Hoover or W?

Debbie said...

Dr. HB, this is one of your finest entries. You have learned me something today. Thank you.

Anonymous said...

It is getting annoying to constantly here people complaining about "W" and how it is all his fault... It is so shallow and idiotic and if this is your only reasoning for this mess you have no credibility! I know at least the same amount of liberal shyster speculators as I know conservative shysters in my small circle, but one sticks out. A PC liberal shyster with a liar loan from San Francisco, who is crying in my ear every time I see him about his "second home" he bought for 1.25M and his neighbor just sold the same house for 875k 2 month ago.
I guess, this too is "W" fault.. right??

Dr Housing Bubble said...


Actually it was President Calvin Coolidge that presided over the Florida housing boom and bust. The peak was reached in 1925 in Florida and Hoover didn’t take office until 1929. If anything, Hoover was at the wrong place at the wrong time with the Great Depression. He was as much as the cause of the Crash as the current administration is the reason for this housing market. I bet Coolidge was thanking his lucky stars in 1931 and 1932 when the market was tanking.

The article is long but the overall point is to highlight the housing market in Florida and show the parallels with the current housing market. The solution and blame isn’t as clear cut as many would like to believe.


Glad you enjoyed the post. You may want to pick up the book and read it if you have time. One of the better historical books regarding the 1920s.


You’ve been reading this blog for sometime and you know through the many articles I post that I do not think the current housing market is due to the current administration. This is beyond one party, group, or symptom. In fact, I was pleased when the President stated “no bailout.” It was unfortunate that he recanted only a week later. I’m surprised many other Republican candidates aren’t speaking up with solutions. But as leaders, people need to step up with solutions.

I think most people are dissatisfied with Congress (Democrat) and the President and his administration (Republican). In fact, job approval ratings are at historical lows for both branches of government.

But the major point of the article was to highlight the history of the Florida housing market. We’ve had similar bubbles in the past and it helps to examine their causes and reasons for existing. I know in 2008 we will have a hotly contested race because there is no clear frontrunner so I’m expecting emotions to run high. But let us not forget the actual reasons for this housing market:

*The Fed dropping rates to 1 percent and expanding credit in the market
*The mortgage market dropping lending standards and offering easy access to loans to people who didn’t qualify
*Buyer and seller speculation
*Flippers looking to turn a quick profit
*A consumption based society with a negative savings rate
*Wall Street creating a market where exotic mortgages had a place to be sold
*Politicians now talking about a carte blanche bail out

I'm sure we've had Republican, Democrat, and Independent speculators so this isn't confined to one party.

PDX Renter said...

Bush has been working to expand homeownership since 2003. An example would be H.R. 1276, the so-called American Dream Downpayment Act.

While he certainly is not 100% to blame, it would be remiss to say that he did not contribute to the problem.

Bush and The Repbulicans have proven themselves to be fiscal zealots every bit as much as the "tax and spend" Democrats.

caliguy2699 said...

Fascinating post. We constantly hear about "this time it's different" compared to the downturn of the early 1990s (speficially, here in Southern California, since that one was mostly because of aerospace jobs going away, whereas now it has more to do with loans), but it's really interesting to see that in fact this bubble does have a historical parallel - to the 1920s, as you mentioned. People never learn from themselves, do they? Great work!

Anonymous said...

My post was not addressed to your article but to the first post here. I think you one of the few balanced bloggers on the Internet and I very much enjoy your writings!
double take: Hoover or W?

Sam said...

As a history buff and real estate broker for over 30 years, I'd like to congratulate you, dr. housing bubble, for a point on column. Actually, it was Harding's ineptitude that set the stage for the calamities of the 1930's. Unfortunately, there are compelling parallels between H. and today's B. With that said, I will disclose that voted for his father as well as Reagan, so this is not a partisan attack. The fact is, the boneheaded, anti-intellectual climate of the current administration has slopped indiscriminately from foreign to domestic issues. We are in trouble, no one reading this blog doubts that. The fact is that the middle class has been sold a bill of goods in the form of easy money, which diverts them from the reality of a shrinking standard of living. The piper must be paid- don't think our children will work to support us in our old age- the rates of taxation for that are not only unfair, but unsustainable. If blame is to be assigned, then the buck needs to stop where it belongs- the president with his costly, unnecessary war and ostrich like tax policies and Mr. "Easy Money" Greenspan certainly deserve a great deal of ire- they were always available to readily take "credit" for the state of the nation in rosier days.

HONESTLY said...


You have no credibility either. First off, you lie and mislead all of us with your username, as you are anything but liberal. Second, you come here and most of your post is purely to entice hate of some sort or to promote you own agenda. I do take offense in your calling everybody on this board a shyster. Dr HB is the most polite person I've ever known since he hasn't ban you from posting yet.

Anonymous said...

HONESTLY... First, you a complete liberal idiot... My user name is "liberalmoron" but I guess it's "W" or my fault that the blog truncates the user names.. Second, WHERE did I call "EVERYBODY" on this blog a shyster?????? Show me where you stinking twisting, liberal moron. I am so sick of you pseudo intellectuals twisting the truth and get away with it... now go in the corner and suck your thumb... IDIOT!!!

Dr Housing Bubble said...


Thanks to a reader who sent this in. Very appropriate to the Florida housing boom. A look at a Marx Brothers movie, a few months before the crash:

The Cocoanuts

"The plot of The Cocoanuts is set in a resort hotel during the big Florida development boom of the 1920s. Groucho runs the place, assisted by "straight man" Zeppo. Chico and Harpo arrive with empty luggage, which they plan to fill by robbing and conning the guests. Margaret Dumont, in the first of her many appearances as a stuffy dowager wooed and tormented by Groucho, is a guest, one of the few paying customers. Her daughter is in love with a struggling young architect, who is working to support himself as a clerk at the hotel, but who has plans for the development of the entire area. Dumont's character wants her daughter to marry a man she believes to be of higher social standing." -From Wikipedia

Sounds like a winner to me. Has anyone watched this entire thing? It's all on YouTube but I only caught this short clip.

Huell Howser said...

Dr. HB,

How is it that you're using my image whenever you post a comment?

Son of Brock Landers said...


Are you gearing up for a book deal? Great post.

I doubt we'll see a great depression again because the economy is much more diverse than it was in the 1920s. The health care industry's growth alone has added a different dimension to our economy's flexibility and ability to withstand downturns. I do think we're in for a recession as the MEW spending drops to 0, which will affect that 70% of our GDP known as consumer spending. Gov't spending won't pick up the slack, and business investment has been so-so for years after the '90s overinvestment in tech. Keep writing.

Your historical comparison posts do a great job of making people aware that history has a way of repeating.

Tom said...

Yes, short term the real estate values plummetted but what if they held on? What would this property be worth in today's dollars? Would it still be a bad investment?

abc 123 said...

quote: It is getting annoying to constantly here people complaining about "W" and how it is all his fault

Yes, the housing bubble wasn't Bush's fault. The genocide, torture, and raping of civilians around the world is. The death toll in New Orleans in 2004 is (he appointed a monkey as head of FEMA). The rise of terrorism in the past 6 years is Bush's fault. The lost of basic civil rights like Habeus Corpus is Bush's fault. The fact that everyone in the world, even Americans, now hate America is Bush's fault. But the housing bubble is actually the one thing that is not Bush's fault. What a great president.

Dr Housing Bubble said...

@huell howser,

Here at Dr. Housing Bubble, we are big fans of the show “California’s Gold.” What can be better then traveling to obscure places in California and getting paid for it?

@son of brock landers,

We are preparing for something new so stay tuned!

In regards to the Great Depression, our current system is vastly different but this does not mean we are immune to a severe recession which I think is something we will face. Take a look at today’s job report. It is now almost a foregone conclusion that the Fed will drop rates in a little over a week. Health care will be booming especially geriatric services and also biotechnology. Not all industries will be impacted. But I do think that the financial and housing sector are done for a few years. What will these people do? It’ll be a big hit on the economy because these job losses (last time I checked they amounted to 88,000 for the year) are high paying prestigious jobs. It’ll be hard for these people to find equivalent paying employment.

Glad to have you on board sobl! Thoughtful comments as usual.


I’m not sure I see anything holding values up short of bringing back exotic financing. In fact, I would argue that prices in many metro areas are only starting their first stage of price depreciation. You bring up a good point however. I do think the Fed even though they are supposedly concerned about inflation, would like to inflate wages and allow a few years out to let this bubble play out. Their ideal scenario is stagnant home prices with incomes slowly catching up. But as you can see from today’s job report, it’ll be hard to have overall income increases when people are losing their job. This was a circular bubble. That is, housing created housing related jobs that created housing related spending that created housing growth. Somewhere in the mix we had massive speculation and this added more jobs and more houses and more spending in this industry. Since most American’s derive their net worth in housing prices (that is equity), any drop in equity will have a large impact on the country via a negative wealth effect.

@abc 123,

2008 is going to be a very tight race. As of today, there is no one clear winner. The old model of standing behind 3 issues is starting to break because many people hold differing values on the country. Some may view the economy as most important. Some may view foreign policy. Others may view limited government. What we are seeing is politicians having a hard time having their pulse on the public. For example with the bail out talk. They figured 70 percent of people own so any support would be welcomed. What they failed to realize is some people own $100,000 to $250,000 homes with minimal mortgages and don’t need any help. They also failed to grasp that these folks are vehemently opposed to bailing out hyper priced metro areas where flippers bought $600,000 homes only to sell them a year later for $700,000. The issue is more complicated then looking at populist figures. The next few months will shape the race in early 2008 by defining the most pivotal issues.

all things good staff said...

By the way, Only Yesterday was turned into a more encompassing book by Frederick Lewis Allen titled (if I'm remembering correctly) The Big Change, which incorporated much of the material of the first. It's been 35 years since I read both of these but I remember enjoying them. If you liked the former I suggest you track down the latter.

Karl said...

What we have to fear is fear itself, and I see some of it in this blog calling on government to 'provide solutions'. Ugh! The government 'provided solutions' and turned a recession into the great depression, which lasted until WWII. Do not allow the government to control or micromanage the economy, they will screw it up. Of course since they already do, I'm not too optimistic.

Oso said...

Dr HB,
very interesting and informative, as usual. I'd like to make an observation on the subject of "bailouts". I don't think it would be intended as some sort of cash payment to those facing foreclosue. more likely some sort of mass refinancing program. Sure this would get some homeowners off the hook, but I think the intention is to provide funding to them so the investors in the secondary market get pumped back up. the hedges/investment banks would be the ones really getting bailed out.

mrfnuts said...


You are absolutely correct, this bail out as it is proposed is a massive refinancing program to get some of the loans (and parts there of) off the books of the banks/wall street and onto the public books. Effectively a bail out for the finance industry.

I hate the idea of bailing out the flippers/speculators/14K per year strawberry pickers/etc, but, I actually more hate the idea of bailing out their enablers.

Those banks made tons of money in loan origination fees. They did not care who the lent the money to, as long as they lent it and collected fees. Now, when the obvious consequence of low lending standards and ignoring risk come to light, these same banks that were so profitable a couple short years ago want the tax payer to assume the loss (or potential loss).

The fact that no politician seems to be blocking such action (with perhaps the exception of Ron Paul) only points to the fact of how corrupt/stupid the Federal level of government is, and they don't even bother to try to hide it any more.

Anonymous said...

ABC123.. don't make me laugh, it hurts.. I grew up in Europe and have been here less then 20 years and do you know what we called the Americans in Europe 40 years ago? No, not the president but the American people. We called them ignorant uneducated idiots and other choice words! That was 40 years ago and nothing changed since then. You may want to stop reading liberal stuff oozing with hatred and lies and then spewing it brainless around. Do you ever been to New Orleans before the hurricane? If not just shut up, you know nothing. Your liberal drivel about New Orleans is really getting old, just ask all the victims of DAILY murder, rape, gang shootings there, and now you morons talk like it was the Vatican. One day you going to choke to death on your PC BS!!

If any of you still feel that this war on terror is a mistake, here is an opinion from an unexpected source. It's fascinating that this should come out of Europe. Mathias Dapfner, Chief Executive of the huge German publisher Axel Springer AG, has written a blistering attack in DIE WELT, Germany's largest daily paper, against the timid reaction of Europe in the face of the Islamic threat.

This is a must-read by all Americans. History may well certify its correctness.


Commentary by Mathias Dapfner CEO, Axel Springer, AG)

A few days ago Henry Broder wrote in Welt am Sonntag, "Europe - your family name is appeasement." It's a phrase you can't get out of your head because it's so terribly true.

Appeasement cost millions of Jews and non-Jews their lives, as England and France, allies at the time, negotiated and hesitated too long before they noticed that Hitler had to be fought, not bound to toothless agreements.

Appeasement legitimized and stabilized Communism in the Soviet Union, then East Germany, then all the rest of Eastern Europe, where for decades, inhuman suppressive, murderous governments were glorified as the ideologically correct alternative to all other possibilities.

Appeasement crippled Europe when genocide ran rampant in Kosovo, and even though we had absolute proof of ongoing mass-murder, we Europeans debated and debated and debated, and were still debating when finally the Americans had to come from halfway around the world, into Europe yet again, and do our work for us.

Rather than protecting democracy in the Middle East, European Appeasement, camouflaged behind the fuzzy word "equidistance," now countenances suicide bombings in Israel by fundamentalist Palestinians.

Appeasement generates a mentality that allows Europe to ignore nearly 500,000 victims of Saddam's torture and murder machinery and, motivated by the self-righteousness of the peace movement, has the gall to issue bad grades to George Bush... Even as it is uncovered that the loudest critics of the American action in Iraq made illicit billions, no, TENS of billions, in the corrupt U.N. Oil-for-Food program.

And now we are faced with a particularly grotesque form of appeasement. How is Germany reacting to the escalating violence by Islamic Fundamentalists in Holland and elsewhere? By suggesting that we really should have a "Muslim Holiday" in Germany?

I wish I were joking, but I am not. A substantial fraction of our German) Government, and if the polls are to be believed, the German people, actually believe that creating an Official State "Muslim Holiday" will somehow spare us from the wrath of the fanatical Islamists. One cannot help but recall Britain's Neville Chamberlain waving the laughable treaty signed by Adolph Hitler and declaring European "Peace in our time".

What else has to happen before the European public and its political leadership get it? There is a sort of crusade underway, an especially perfidious crusade consisting of systematic attacks by fanatic Muslims, focused on civilians, directed against our free, open Western societies, and intent upon Western Civilization's utter destruction.

It is a conflict that will most likely last longer than any of the great military conflicts of the last century - a conflict conducted & nbsp;by an enemy that cannot be tamed by "tolerance" and "accommodation" but is actually spurred on by such gestures, which have proven to be, and will always be taken by the Islamists for signs of weakness. Only two recent American Presidents had the courage needed for Anti-appeasement: Reagan and Bush.

His American critics may quibble over the details, but we Europeans know the truth. We saw it first hand: Ronald Reagan ended the Cold War, freeing half of the German people from nearly 50 years of terror and virtual slavery. And Bush, supported only by the Social Democrat Blair, acting on moral conviction, recognized the danger in the Islamic War against Democracy. His place in history will have to be evaluated after a number of years have passed.

In the meantime, Europe sits back with charismatic self-confidence in the multicultural corner, instead of defending liberal society's values and being an attractive center of power on the same playing field as the true great powers, America and China.

On the contrary - we Europeans present ourselves, in contrast to those arrogant Americans", as the World Champions of "tolerance", which even Germany's Interior Minister) Otto Schily justifiably criticizes. Why? Because we're so moral? I fear it's more because we're so materialistic, so devoid of a moral compass.

For his policies, Bush risks the fall of the dollar, huge amounts of additional national debt, and a massive and persistent burden on the American economy - because unlike almost all of Europe, Bush realizes what is at stake - literally everything.

While we criticize the "capitalistic robber barons" of America because they seem too sure of their priorities, we timidly defend our Social Welfare systems. Stay out of it! It could get expensive! We'd rather discuss reducing our 35-hour workweek or our dental coverage, or our 4 weeks of paid vacation... Or listen to TV pastors preach about the need to "reach out to terrorists. To understand and forgive".

These days, Europe reminds me of an old woman who, with shaking hands, frantically hides her last pieces of jewelry when she notices a robber breaking into a neighbor's house.


Europe, thy name is Cowardice.

God Bless America---

Anonymous said...

And to really piss you off ABC 007.. here is another one:

So, What's in a Billion?.......
The next time you hear a politician use the word "billion" in a casual manner, think about whether you want the "politicians" spending your tax money.
A billion is a difficult number to comprehend, but one advertising agency did a good job of putting that figure into some perspective in one of its releases.
A. A billion seconds ago it was 1959.
B. A billion minutes ago Jesus was alive.
C. A billion hours ago our ancestors were living in the Stone Age.
D. A billion days ago no-one walked on the earth on two feet.
E. A billion dollars ago was only 8 hours and 20 minutes, at the rate our government is spe nding it.
While this thought is still fresh in our brain, let's take a look at New Orleans. It's amazing what you can learn with some simple division . .
Louisiana Senator, Mary Landrieu (D), is presently asking the Congress for $250 BILLION to rebuild New Orleans. Interesting number, what does it mean?
a. Well, if you are one of 484,674 residents of New Orleans (every man, woman, child), you each get $516,528.
b. Or, if you have one of the 188,251 homes in New Orleans, your home gets $1,329,787.
c. Or, if you are a family of four, your family gets $2,066,012.
Washington, D.C. ... HELLO!!! ... Are all your calculators broken??
This is too true.........And these numbers don't lie.........and, it's not funny!!!

Insight said...

For all the political grandstanding that has been occuring on this issue; I do not believe anything can be done to stop the onslaught on defaults coming up in the next few months. Myself and a co-worked constantly have discussion on many financial matters. His belief as well as mine which seems to be the overall feelings of the people on this forum is that the primary reason one should purchase a home is to live in. The equity built in your home is your nest egg; To be used in an extreme emergency (Medical, Paying for you kids education, supporting you through retirement as investment income.) Their a lot of people who took the value of owning a home for the purpose of instant gratification. Right now we been having a discussion on our interpretation of what a recession is? : questions for anyone reading this post. Can Americans become a nation of savers again, and what would our economy look like, What will it take for this to happen? (Dr. Housing Bubble)

Oso said...

IMHO we need to raise interest rates above true inflation, and the sooner we do this the better. Then US can begin the road back to becoming a nation of savers. We also need to restore W's tax cuts for the rich (sorry liberal) so we will be less dependent on the rest of the world's largesse to fund our deficit spending. lowering interest rates is pouring gasoline on the fire, we won't have a soft landing but putting it off will only make things worse.

Lost Cause said...

W sucks like a Hoover, so I am not surprised.

Anonymous said...

Oh, Yeah?? I learned really fast how much the liberals in this country care for the poor people, especially in California, when I got my first job years ago working my ass off on minimum wage (withholding single zero) and filed my first tax return and owned the Peoples Republic of California $360. Now thats a real workers Paradise you have here, not even in the most socialistic state something like this would happen.
Just keep on wishing that they cut the "so called" tax break for the rich and you will need a fly swatter to keep the hands of the politicians out of your pocket... but I guess you love to work for other people and politicians.. RIGHT?
Why are the liberals in this country the most uneducated, vile and just plain dumb people?? I met communist in France and Germany who had more sense that most of the liberals here combined...

thamnosma said...

How about a simple snapshot that defines housing bubble...

Nathan said...

@liberal: Please just go away. You've injected partisan invective into the comment section of an otherwise non-partisan blog, just because one commenter made a 3 line comment you didn't like.

Political discussions are great, but this is not the appropriate venue.

Oso said...

liberal, please.get a grip. not every attack on economic policy is a personal attack on your politics. both dems and repubs are wrong here, but W DID push the tax cuts. And they DO benefit the rich who didn't invest in infrastructure or "trickle the $ down". they did not help us, the lack of $ hurt us and causes us to depend even more on China.

Anonymous said...

OSO.. I just get annoyed the idiotic attacks and nobody speaks up. As a thinking person, do you really think I like "W". But people need to get a grip and stop assaulting this president with lies and half baked rhetoric..
what irritates me the most is the idealizing of the stupid socialist agenda by our liberals. I grew up in Germany and lived most of my life there and I want all these bleeding hearts go there and live there! No, not go there and visit with a big tourist wallet or being stationed there in the Army, live there, work there, grow up there, go to school, deal with bureaucrats and I can assure you that 90% of the American liberals would either commit suicide after a year or run screaming back to the US.

thamnosma said...


Please just go away yourself.

If you don't like his posts, just ignore them, but you are not the arbiter of who may or may not be welcome here.

I am also very tired of endless rhetoric of it's "W"'s fault for everything. It's simplistic partisanship that contributes little to fully understanding the general political and economic forces that led to the housing bubble. It's so much more complex.

Greed and bad decision-making are human foibles, belonging to no particular party.

Oso said...

Liberal, thanks for the reply. and "get a grip" was kinda personal, I apologize. While I have a lot of problems with the administration, I agree blaming everything on one side is infantile.

Anonymous said...

oso.. no problem. I really think what we see here is just human nature, aided by bad politics and greedy companies and other enablers, but I think that started way back when we moved into the first cave and the neighbor had a "better" cave!
I am sorry to say, but it took me less the 10 years after I arrived here to turn from of these "euro liberals" to a pretty conservative person and the older I get the more I resent all the liberal "do-gooders" in this country.
This country, with all his fault is as good as it gets in this world. I traveled all over the world, lived and worked in Greece and Italy, stayed for extended times in Turkey, Iran, Afghanistan, Pakistan, India and other countries and all I can say, there is only ONE country I want to live and make my home. But here is the difference, in all these other countries you actually could have a different opinion about politics and other social issues (before all the crazies took over), yell and scream, argue and then have a beer and you still friends. An American friend of mine who studied in Germany for 2 years always told me the story about all her German friends sitting on a table and screaming and yelling at each other and in the beginning she was completely scared and appalled and thought that they will start a fist fight. HAAAA.. She slowly realized thats just how people there talk to each other when it comes to
politics...etc.. there was never a entrenched partisanship, people didn't beat each other up over that..
Something got lost in our country,the rhetoric is so shallow and mind numbing it is becoming unbearable. So much anger and resentment all over... and please don't tell me it was better when Clinton was in power... pretty sad.
For me, it's always people and politicians are there to just stir things up and only look out for themselves... difference in this mortgage mess.

audax said...

Sorry about setting that guy off. I still haven't found my copy of Only Yesterday but I'm guessing I confused Hoover and Harding. I wasn't blaming W, just drawing attention to some similarities mentioned in the book. Then again, anybody who read so much into one sentence was bound to take offense. Still, I'm sorry for the misunderstanding Dr. HB

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Anonymous said...

I got to this comment section late but I wanted to thank you, Dr. HB, for a great post and your blog in general. I love history parallels and because humans never learn from past mistakes as a collective whole, parallel story opportunities will continue.

As I read the stuff about Florida, I couldn't help but think about the native americans who were pushed off their land by the conquering invaders and land expanders. Mother Nature must have helped extract some revenge in those hurricanes.

But, I did want to share a link to a ghost town in Nevada, Metropolis. It started to grow around 1925 and was surely one of those town that became a municipality overnight due to residential construction. It died once the city of Lovelock threw a fit over the water it hogged.

JadeEJF said...

Here's a good article for your blog's readers to chew on (even though it won't get quite the response this one got, i bet)...

JF_Lovely said...

They say history may not repeat itself - but it sure seems to rhyme doesn't it.