The Florida Real Estate Boom: Historical Context
To be in Florida is to be in the real estate business.
It is a conversational and much-talked-about business nowadays, especially after two powerful hurricane seasons and the rising price of gas. We have had our share of booms and growth spurts, followed by normalization.
What we’re seeing nowadays is hardly new to the Sunshine State. Industry officials still cite the great Florida real estate collapse of 1926, which preceded the Great Depression. In the frenzy leading up to the crash, eager buyers and sellers swapped real estate parcels as often as 2-3 times a day.
The trading taking place was principally in options. For a few hundred dollars, you purchased the right to buy a parcel worth several thousand. Later in the day, or the week, you might sell your option for twice what you paid for it.
As in most booms, just like we saw in the first half of this decade, there was a level of excitement suggesting you better buy now before the prices soared higher again. As a seller, you might want to hold back for a better price next week or next month. The closest thing we have to that today are the down payments on units in the burgeoning condo market, before properties are even occupied.
Florida is subject to the same forces that drive the nation’s economy, but differs from much of the nation because of our extraordinary population growth. When the boom of 1926 broke, there were only about 1.5 million year-round residents in the state. That number is now over 17 million. The U.S. Census Bureau says California, Texas and Florida will continue to lead the nation’s growth.
Thanks in large part to rising Florida mortgage rates, the most recent housing boom ended about a year ago. It was a typical boom, fueled by desire of people to find a home (or second home) in the sun, then rocketed by the arrival of many, many speculators and the subsequent loss of a significant part of our available housing.
Potential sellers held their homes off the market, waiting to see just how high prices would go. Then, like clockwork, as transactions slowed, they rushed to put their property on the market, creating a massive amount of inventory. Some sellers are still holding property off the market. Is this reason for concern?
Historically, evidence suggests it’s not. It’s Florida, and new arrivals will rescue the housing market just as they have in the past. Prices will be determined by new construction. Potential buyers looking to purchase a home can avoid the costs of the first 10 years in an older home where appliances, plumbing, roofs and other essential fixtures may need to be replaced.
They may like the older neighborhood (location is always a price factor, especially in South Florida), but the price will have to be adjusted for the age of the home with the latest modern kitchen and bathrooms. If a home builder is offering inducements to buy at a square-foot cost of $125, the reseller of an older home must be significantly under that to account for the wear and tear on the home or neighborhood.
Over the long term, demand will continue to grow.
Since 1980, and the recovery of the Florida real estate bust of the late 1970s, population in Florida has grown at least 3-4 percent a year. The United States as a whole, by contrast, is growing at about 1 percent per year. This underlying demand provides a safety net to a bust.
Following our growth boom during the 1980s, the population grew at a rate between 6-7 percent and then fell off to about 2.4 percent. It’s about to grow at a much faster clip. The first of the baby boomers are now in their early 60s. Unlike first-time buyers or those struggling to make ends meet, more expensive Florida mortgage loans won’t be a deterrent for boomers. They will be driving Florida’s growth for the next 25 years.
