The boom of growth continued until 1890. Roanoke was "gripped in the frenzy of its third real estate boon in eight years" (Bacon 14) As iron foundries and warehouses sprouted around the junction formed by the Shenandoah Valley and the Norfolk and Western railroads, the city was "jammed with Yankee capitalists, English investors and home-grown Southern entrepreneurs looking to make a quick dollar in land" (Bacon 14).
Roanoke's population reached nearly 20,000, thirty times greater than a decade before. Sharecroppers migrated to the city for jobs with the railroad or the Roanoke Machine Works. Merchants opened more restaurants, boarding houses, shops and offices. Industrialists invested in new factories and trading companies. The demand for land increased tremendously and prices continued to climb. Although land values had sputtered in the brief downturns of 1883 and 1886, Roanoke's relentless growth inevitably pushed them higher. About 75 land and investment companies pandered to the desire for land speculation. One Roanoke Timesnews correspondent observed at the time: "The city is filled with strangers. The hotels are crowded to their utmost capacity and hundreds of thousands of dollars are changing hands daily. Property that five years ago was assessed at $70 per acre is now bringing $50 to $200 per front foot" (Bacon 14).
Eventually, the prices lost all contact with reality. "'Speculation in town lots was made without regard for present or prospective improvements; the sole object seeming to be that of buying property and disposing of it promptly at an increased price,' Roanoke historian E.B. Jacobs observed disapprovingly 25 years later" (Bacon 14). The city "throbbed with unrestrained vitality. Houses and buildings were constructed with haphazard abandon. Electric lines, telegraph lines, and telegraph poles cluttered the streets. Barbed wire fences were strung around private home to keep out the cows" (Bacon 14). In the early 1890's, there were nearly as many "saloons as hotels and restaurants combined. Even at the turn of the century, one indignant preacher charged that the city's thirty whorehouses supported 150 women in an 'unchaste and impure' occupation" (Bacon 15). The burst began on December 16,1890 with a severe snow storm that dumped three feet of snow on the Roanoke Valley. It caused "at least one death when the roof of the railway machine shops caved in and thousands of dollars in property damage" (Gladden 21) The significance of this snow storm is that it gave speculators time to reconsider what they had previously believed to be the "land of milk and honey" (Gladden 21). The snowfall may be blamed in part but the over-speculation in the Roanoke area and the national depression certainly added to the economic woes of the "Magic City."
The burst and subsequent depression produced widespread unemployment: "houses stood empty and advertisements for property filled columns in the Roanoke Times. In 1893, the Roanoke Times seemed "interested in almost anything except the local economic situation. An argument over a $2500 city council appropriation produced the only real 'hard times' reference going into 1893. 'The finance of the city will not permit of any extravagance. The general state of business in the town is depressed and will continue so for some time.' As 1893 approached, the economic situation, when it was mentioned at all, was mentioned only in relation to future progress -- that Roanoke was about to 'boom' again: 'Roanoke will be making another and the greatest of those phenomenal strides which have in the past years electrified the country...'" (Brown 4).
The Norfolk and Western railroad also suffered the effects of the burst and subsequent depression. The railroad got off to a bad start in 1893, "[b]y the end of February, the railroad was behind in both its freight and passenger hauls as compared with the 1892 figures for the same period. The net gains stood at $254,000 in 1893 as compared to $372,000 in 1892. This was an alarming figure" (Brown 12). The root of the problem lay in that the Norfolk and Western overextended itself in its business endeavors, so much so that there was talk of a receivership. Again, the Roanoke Times attempted to mollify the situation by stating, "'There is some entirely unnecessary gossip afloat concerning the Norfolk and Western railroad and a receivership. Roads don't go into the hands of receivers until they are unable to pay their fixed charges.' The editorial went on to say that the NW not only could pay these charges, but that it was certainly improving" (Brown 12). Despite the earlier hopes of the Roanoke Times, the NW did go into receivership in 1895 and was reorganized as the Norfolk and Western Railway. This, however, was not enough to buoy the entire economy. The "trappings of a modern community were becoming increasingly evident" (Gladden 26). The city continued in a state of depressed finances during 1895 when the commissioner of the state Board of Public Works had assessed the locomotives and cars of the Norfolk and Western Railway in Roanoke at a value of about $4 million while the city was taxing the property at less than $1 million. The commissioner raised his assessment. The railroad "objected strenuously but a compromise was reached on a valuation sufficient to provide ample tax revenue for city purposes. Enough revenue was collected in December to operate city government through the next year" (Gladden 27). Financial problems continued as municipal expenditures exceeded revenues and the city's indebtedness increased. The railroad taxes, however, gradually lifted the city back into economic progress. Thus, Roanoke regained its "economic legs" (Gladden 27).