January 26, 2007

The Corrupt David Lereah says speculators have left the market. Well, here's what happens when that happens - The 1926 Florida Real Estate Crash

There should be no surprises for HP'ers. We've been here before, and we'll be here again... Another good real estate / banking panic to study up on if you want context for our current crash would be the 1926 fun-fest in Florida. Enjoy the read.

The 1926 FloridaReal Estate Crash

Real estate has always been one of the ways to make great fortunes

As a matter of fact, both real estate and stock market have made more millionaires than any other investment.

The sad part is that most speculators in either of the two investments end up losing their shirt!

The era of extreme low interest rates, a smart propaganda that landlords are getting rich at the expense of their tenants, and everybody's dream to own a house, no matter how outrageously it is priced, have resulted in prices going sky high!

In 1926 in Florida the real estate market declined from peak to bottom. Land that was bought for $1 million could, within six months, be resold for $4 million before crashing back down to the pre-boom $ 100,000 level.

The prices were so inflated that to buy a small property in 1926, you would've had to pay the same as you would now have to pay for a luxury home!

In the mid 20's Florida became a popular destination for those who were seeking to escape the cold.

Unfortunately, housing could not keep up with the demand, so prices started to go up as more and more people started to compete for housing.

Soon speculators decided to jump in and before you knew it an flood of money was chasing limited housing. Houses started to double and triple in value.

The only way to realize profits was to sell at a higher price than you paid for the house. For a while everything was great but the supply of fools willing to pay such inflated prices for property eventually came to a halt.

Speculators began to sell their properties to get their profits while they could.
Then everybody simultaneously saw the "bubble," and panic selling ensued. With thousands of sellers and very few buyers, prices started going down and down and down...

That is when the situation abruptly changed and individuals started getting vaporized by the hundreds. Before you knew it, the prices had fallen down to pre boom levels.

If you look at the prices of some houses, you will see that after almost 70 years some houses are still selling for less than what the then owners paid for them.


Anonymous said...


good stuff:

Think of speculators as players in a game of musical chairs. The chairs represent the safe positions where investors wind up with cash proceeds from the sale of their securities at a high price when there are still many buyers, before the music stops.

The alternative position, standing, is where everyone else is left after the music stops! These players are stuck holding their securities for lack of a buyer as values drop 20%, 30%, 40%... In a selling panic, there are few if any buyers.

When the game is on, the players circle the row of chairs while an orchestra comprised of financial services company employees play in concert with press reporters and editors, financial planners and other groupies who make sweet music for the investors circling the chairs.

Brokers, press agents, market analysts, and others involved in marketing and selling financial products play off the same sheet music! Those who don't play off the same sheet music are labeled "contrarian" and are sent off to remote sites where they can make their odd sounding music in obscurity.

But no game of musical chairs can last forever! After a while, sometimes gradually and sometimes suddenly, the orchestra begins to play off-key.

Confused and uncertain, the players look to each other for cues. Does this mean the music's going to stop soon? Of course, that's exactly what it means! And at about the same moment almost all the players come to realize this.

Then the orchestra suddenly stops playing and the players rush to sit down!

Anonymous said...

some more


An investor takes an amount of money out of his pocket and buys some stock. He thinks he still has that much net worth, but all he actually has is equity paper instead.

If the price of the stock goes up he thinks he has more net worth. He can even use the stock as collateral to borrow more money to buy more stock!

Meanwhile, the original money he spent to buy the stock goes to the person he bought the stock from. The stock seller might put the money in the bank where someone else will borrow it or he might buy again the same stock himself, helping to drive the price up some more.

Now the person he bought the stock from has the money he got from the first one he sold the stock to ...
And so on and on and on ...

Add up the money that everyone thinks they've got and it's far more than what's really circulating. As long as the demand continues everything is fine and the apparent wealth keeps on growing!

But what will happen if a significant number of people all want to make a withdrawal at the same time? And why do speculative markets always end in panic selling?


Anonymous said...

NEW YORK, Jan 25 (Reuters Life!) - If you're looking for a new home and have $155 million to spare, you could be the proud owner of the world's most expensive abodes.

Forbes.com, the online site of Forbes magazine, on Thursday said timber and real estate baron Tim Blixseth has just upped the ante in the price of the world's most expensive home, planning to build and sell a home for $155 million.

The 53,000-square-foot stone and wood mansion will be built at the Yellowstone Club, a members-only, residential ski and golf resort near Bozeman, Montana developed by Blixseth.

Anonymous said...

Remember this if you remember at all; the real estate crash in 1926 was just in Florida, this upcoming real estate crash will be of INTERNATIONAL proportions.

Boomin In Boise said...

"The sad part is that most speculators in either of the two investments end up losing their shirt!"

Er, how is this sad? Speculators by definition are trying to call the top and/or bottom. They will always end up toast. Just as roulette is never profitable longterm because the house has a mathematical edge, speculators will always (and should always) be the b*tch of the longterm investor.

Anonymous said...

So how did housing do in the rest of America in 1926?

Marky Mark

The Thinker said...

Honest Dave in 2001, "No bubble burst in tech stocks, only the speculators have left the market."

buyerwillepb said...

So does anyone think the panic will be different here in San Diego this time?

I don't think so.

brokersleaveyoubroke said...

Great comment in the guest commentary section of prudentbear.com today

"perennial real estate shill David Lereah (chief “economist” for the National Association of Realtors) claimed “It appears that we have established a bottom.” (Mr. Lereah has seen more bottoms than a diaper attendant in a hospital nursery.) "