COLUMN: History will repeat real estate resilience in Destin

The magazine ad pictured here was the beginning of my Destin experience.

The year was 1974. The ad was in Southern Scene, the in-flight magazine for Southern Airways. New Sandpiper Cove condominiums were selling for $24,500. I bought one. It changed my life forever.

Here are some of my observation of the ups, downs, whys  and wherefores of the Destin real estate market since then.

1974-1981: The market was depressed from the overbuilding of the mid-seventies. Just as the excess inventory was absorbed, prices soared and interest rates skyrocketed. I recall paying 15 percent for a home loan in 1981. Inflation was rampant, so the Fed raised interest rates which in turn, led to a stagnant economy known as “stagflation.”

1981-1986:  Ronald Reagan was elected in 1980 and Congress passed his Economic Recovery Tax Act in 1981 (ERTA 81) to stimulate the stagnant economy. This legislation gave taxpayers an artificial incentive to avoid taxes by buying rental property. It gave us the accelerated 15-year write-off for a substantial paper loss. This paper loss could be used to offset active income for tax purposes. The long-term capital gains holding period was cut in half  from one year to six months.
Taxpayers took the bait and bought rental property, especially condos, even if many of them provided little income. They could justify the purchase based on the tax benefits alone. The Destin Log published a cartoon showing a skyline filled with high-rise construction cranes. It was titled, “The Destin City Bird.”

1984: The ”Sleepy little fishing village of Destin” awakened as the City Of Destin.

1986-1989: Members of Congress complained that many “fat cats” were avoiding taxes by buying rental properties, (a result of their ERTA 81). So, they reversed their earlier legislation with the Tax Reform Act of 1986 (TRA 86). This legislation didn't only eliminate the 1981 incentives, it went overboard by eliminating traditional incentives already in place prior to 1981. The write-off period was extended to 27.5 years, straight line only; no acceleration allowed.
The real killer was that most taxpayers could no longer offset active income with passive paper losses from real estate. This devastated the real estate market for the next several years and created a mild nationwide recession.

1990-1995: Destin property values once again proved their resilience by recovering while the rest of the country was still mired in recession. In 1991, I wrote a column for the Destin Log titled, “Destin asks: ‘What recession?’ ” We were coming out of it by then. For the next several years, property values climbed at a good steady pace with no problems — until late 1995.
1995: Hurricane Opal hit in October, devastating the Destin area like we had never seen before nor since. My community of Holiday Isle got hit the worst. Whole houses simply disappeared. Four feet of sand covered Gulf Shore Drive. You could walk across what had once been a deep-water canal. The National Guard was called in with weapons. It looked like a war zone. Sales stopped — at least for a while.

Like a predator, Opal preyed on the weakest and most vulnerable. Her prey was the older, weaker structures closest and most vulnerable to the storm surge. Again, Destin was resilient. Like a phoenix rising from the ashes, we rose from the rubble and rebuilt better than ever. Property values actually went up along with the rebuilding. You might call it “involuntary urban renewal.”

1996-2002: After rebounding from Opal, we continued another seven years of good, sustainable growth, not too slow, not too fast. This marked more than a decade of such growth with only a brief interruption caused by Opal.
Before we get to the next timeline, let me state that property prices and property values are not always the same. The decade-long sustained growth in prices up to this point was based on the true underlying value of the property. That was not the case in what came next.

2003-2005: This is when it got really crazy. People seeing the price appreciation of the last decade decided to get in on it. They bought real estate, not because they needed nor wanted it. Their sole  intent was to “flip” it for a fast buck.
This caused prices to increase further which in turn, caused more people to buy, more price increases, more people buying, etc. The feeding frenzy fed itself. Using such reverse logic, price increases actually increased the demand. In more sane times, it is the other way around. Even the twin terrors of Hurricanes Ivan and Dennis caused barely a bump in the rush to buy.

2006-2009: The perfect storm: Preceded by greatly inflated prices, low lending standards and greed, the real estate market crashed. But this isn't all bad. We now have investment opportunities like we haven't seen since 1974 or maybe 1986. Look again at the 1974 Sandpiper Cove ad. My friends thought I was crazy to buy in such a depressed market. Now, most of them wish they had also.

No, you can't buy a condo for $24,500 now. But in real dollars, adjusted for inflation, you can come mighty close.

If history repeats itself, as it always does, the next several years will again show just how resilient Destin people and Destin real estate values are. Look for my next update in the Destin Log five years from now when the city Of  Destin celebrates its first thirty years.

Jack Simpson is the broker/owner of Holiday Isle Properties, Inc.