Some excerpts from "The Boom of the Eighties - in Southern California" written by Glenn S. Dumke (1944) and currently published by the Huntington Library Press.
Charles Dudley Warner wrote in his article, Golden Hesperidies, in the November 1882 issue of the "Atlantic Monthly, "It has been a subject of regret ever since that I did not buy Southern California when I was there last March, and sell it out the same month. I should have made enough to pay my railway fare back . . . and had money left over to negotiate for one of the little States on the Atlantic Coast."
An article in the "Los Angeles Times" dated June 9, 1887 told of a Pasadena citizen who took strychnine because "he had sold some property too cheap," and subsequent inflation of values had made him regret his disposal of it.
Lots available for sale became extremely limited as prices leapt higher. Yet by Spring of 1888 lot sales had dwindled down to a trickle and land prices started to decline. By the end of 1889, land prices had declined by 80 to 90 percent.
The turnover of real estate attained a breath-taking pace. By April 1887 the city realized it was in the throes of the most tremendous flurry it had ever experienced, and editorial writers were already predicting the permanence of the frenzy.
One stated that the boom would continue in a normal result of the increase in population. "Never again," he said, "will real estate at points eligible for business purposes or for pleasurable occupation, be as low as it has sometimes been on the market." "To call it a craze or a bubble," proclaimed the Los Angeles Tribune, "is the veriest of nonsense."
Insatiable real estate promoters began to analyze their sales and concluded that newcomers to Southern California were contributing to the bulk of boom profits. They chided native sons for their timidity, and reminded them that easterners were buying "at prices which enabled them to reap the bulk of the great advance." The boom, it seemed, was based largely on fresh capital.
The peak months of the boom - June, July and August of 1887 - brought $38 million in real estate transfers to Los Angeles County. After that, the boom proceeded to slip downgrade, and promoters were fully occupied explaining drooping sales figures and dwelling happily on the past - emphasizing, of course, their opinion that there was no logical reason why the flurry should not surpass itself during the following summer. Their manful strivings were in vain. Easterners, satiated with hysterical advertising, responding in ever-diminishing numbers, and the winter tourist crop was painfully small.
Additional unfortunate incidents occurred to discourage optimists. For instance, January was a month of flooding rains which temporarily disrupted railway traffic, and some property owners decide that the time had come to sell out. Advertisements became plaintive, then desperately noisy, then subsided into mere feeble glimmerings of their old enthusiasm. The boom was over, and the machine was running down. Prices declined 80 to 90%.
"The lying of the San Diego newspapers is something awful to think of and worse to experience." When real estate prices collapsed, the results were so sharp and disconcerting that Berry told the tale of an investor who sold his real estate holdings at a loss of seventy-five percent and went disgustedly to Los Angeles where the situation was calmer. In October, 1874, Berry concluded: "San Diego is bankrupt. Horton is busted and property nearly worthless."
A basic reason why the collapse of the real estate boom in 1890, with property prices declining 80% to 90%, did not utterly ruin southern California's economy was the conservative policy of the banks. In 1888 Los Angeles County had twenty-seven banks, with $3,400,000 on reserve. This was a larger pool than the banks of any county except San Francisco possessed.
Southern-California institutions apparently perceived in 1885 the beginning of inflation, and the Farmer's and Merchants Bank of Los Angeles led in the inauguration of a policy of caution. Deposits reached $5,500,000 in 1886, $8,000,000 in January of 1887, and $12,000,000 before the end of that year.
The banks duly increased their loans, as was natural under the circumstances, but with a steadily rising margin of safety. In 1885 loans amounted to 80% of deposits; in January 1887 to 62.5%. Loans on buildings and property improvements were prohibited first, later no real estate loans were made. By July of 1887 less than half of the bank's funds were on loan, and six months there after only one quarter.
The bank's sturdiness in restricting credit raised interest rates which, of course, limited speculation; had that sensible policy not been pursued, the boom would have involved even larger sums of money at it's height, and the crash would have been correspondingly more disastrous.
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