As the ink dried on a $122.7 million deal for the sale of a contemporary oceanfront Palm Beach mansion this past February, real-estate agent Ryan Serhant toasted his success with a glass of Champagne and a lobster at a table for one at the area’s iconic hotel, The Breakers.

He had flown in from New York to finalize the deal, which was the largest of the year so far in Palm Beach. It also marked the pinnacle of a dramatic market surge that has overwhelmed local real-estate agents since the beginning of the Covid-19 crisis.

In many ways, the deal spoke perfectly to that unique moment. The seller, Mark Pulte, is a local developer who had built the sprawling estate on a 2.25-acre property once owned by President Donald Trump and located near the Palm Beach Country Club. He paid $37 million for the land in 2017. The buyer: Yet another New York financier purchasing a home in Florida. He is Scott Shleifer, a private-equity executive and a partner at Tiger Global Management, according to a person familiar with the deal.

Over the past roughly 16 months, buyers have poured billions of dollars into property in Palm Beach, a 16-mile barrier island off Florida’s Atlantic coast with roughly 2,500 homes. Since March 2020, there have been at least 22 sales north of $40 million in Palm Beach County, with two over $100 million and about 35 over $30 million, according to property records and data compiled by the Corcoran Group and Miller Samuel. Notable buyers include casino mogul Steve Wynn, software billionaire Larry Ellison, designer Tommy Hilfiger and finance-sector bigwigs such as hedge-funder David Tepper and investment-services entrepreneur Charles R. Schwab.

The buying frenzy is driving the volume of big-ticket sales higher than ever before. During the second quarter of 2021, the number of luxury sales—defined as the top 10% of the market—spiked 177.8% compared with the same quarter last year, according to Miller Samuel. The median sale price was $17.75 million, up 97.2% from the first quarter of 2021 and the highest since Miller Samuel began tracking in 2011.

Across all price points, the number of sales of single-family homes in Palm Beach rose 90% during the second quarter, compared with the second quarter of 2020, Miller Samuel data show. And so far this year, Palm Beach has had more sales above $50 million than either New York or Los Angeles, cities that typically dominate the high-end market, said the firm’s founder, Jonathan Miller. But he said the slew of eight- and nine-figure deals aren’t necessarily connected to the rest of the market.

“I see it as the birth of a new property type,” Mr. Miller said. “These properties, their values, have been rethought by those that can afford them. It’s a phenomenon we haven’t seen before.”

Local agents attribute the boom in Palm Beach real estate to a perfect storm of factors, including Florida’s favorable tax policies for the wealthy, the mild weather and the rise of remote work. Last year’s boom in the stock market also created a surge of wealth and some buyers sought a hedge against inflation in the form of bricks and mortar.

Illustration: James Gulliver Hancock

There is also a growing distaste for what some moneyed New Yorkers view as burdensome tax policies at home. In 2019, New York City announced a citywide transfer tax on the purchase of properties priced at $2 million or more, which rises incrementally based on total price. Previously, buyers in the city had been subject only to a 1% mansion tax that also applies in the rest of the state. New York-based hedge funds, like Elliott Management, are planning to open offices in Florida, The Wall Street Journal has reported. Many are following their top brass to the state; Elliott’s co-chief executive officer Jonathan Pollock has been living in the Palm Beach area amid the Covid-19 crisis, according to people familiar with the situation.

“The tax play in Florida has been there for as long as we can remember. The sunshine has always been there. The beach has always been there,” Mr. Serhant said. “What really pushed people over the edge in the last 12 months was the ability to do business from anywhere in the world and the actions of local governments.”

Local real-estate agents said the first couple of weeks of the pandemic lockdowns saw sales slow in Palm Beach, as they did across the country’s luxury markets. Many were bracing for a tough spring. Then, the buying frenzy began.

Developer Corey Schottenstein said that, before Covid-19, he had accepted a full-price offer of $45 million for a roughly 13,000-square-foot contemporary home he built on nearly an acre of land on Everglades Island in 2019. After the buyer defaulted, he kept it off the market for several months. When Mr. Schottenstein relisted the home in November 2020, real-estate values were exploding. He was able to raise the price and sold the home in May 2021 for around $49.1 million. A turnaround like that “would only happen in times like these,” he said. The buyer is James Dinan, CEO of York Capital Management, and his wife, Elizabeth Miller, according to public records and confirmed by Mr. Schottenstein.

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Some longtime Palm Beach residents have taken advantage of surging values by cashing out. “You see a changing of the guard,” said Chris Leavitt of Douglas Elliman.

Sellers included longtime Palm Beach owners such as Dr. Ernst Langer, a German entrepreneur, who sold his ocean-to-lake estate on Palm Beach’s Billionaires’ Row for $109.625 million in June 2021 after putting it on the market about three months earlier. Records show he had owned the property since 2012, when he paid $23.5 million. Punch time-clock heir Edward G. Watkins and his wife, Karen Watkins, also sold their nearby mansion for $95 million, more than five times what they paid in 2001.

Other Palm Beachers, such as entrepreneur Allan Jones, traded up. Last year, the founder of Check Into Cash got an unsolicited offer on the 1950s lakefront home he purchased for $10.8 million in 2013, according to property records. In December, he sold the roughly 7,000-square-foot house, with 121 feet of lakefront, for around $29 million, records show.

In January, Mr. Jones purchased a property in Tarpon Cove for about $26.15 million. The compound, on 0.6 acre, includes a roughly 7,500-square-foot Bermuda-style house, plus a guest cottage and about 230 feet of waterfront. By May, he also sold that property for $41.7 million, a 59% jump in five months. Palm Beach real estate has been his “best investment” to date, he said.

Developer Patrick Carney and his wife, Lillian Carney, also sold two properties this year, neither of which was listed publicly. At the north end of Palm Beach, the Carneys sold a 1.14-acre property with a roughly 11,200-square-foot, Bermuda-style house. The property closed in February 2021 for roughly $68 million, according to property records. The buyer was New Jersey hedge-fund manager David Tepper, as reported by The Wall Street Journal.

A few weeks later, the Carneys sold a lakefront mansion on the Intracoastal Waterway after getting an unsolicited offer, said Mr. Carney, who is CEO of Claremont Companies, a real-estate development firm. Mr. Carney said he told his real-estate agent he was willing to sell in the $50 million range. The deal closed for $49 million. The buyer was casino magnate Steve Wynn.

The Carneys plan to build another house. Until they find the right site for their next project, they are living in a temporary home they purchased a day after it hit the market, paying $12.2 million for the 0.25-acre property, slightly over the $11.8 million asking price. He said there is no question real-estate values are inflated. “We’re in an asset bubble,” he said. “I joke to my friends that I bought a nice $6 million house for $12 million.”

Mr. Carney said he isn’t worried the market will collapse, but he thinks prices will fall. “Values have gone up 50, 70, 100%. That can’t go on,” he said. “Nothing goes up forever, except taxes.”

In recent weeks, local real-estate agents said the pace of deals has slowed, not because there is a lack of demand, but because there is a lack of product. As of June 30, the overall inventory of single-family homes on Palm Beach island was down 77.8% year-to-year, according to Miller Samuel.

Mr. Jones, whose primary home is in Cleveland, Tenn., said he regrets selling his property on Tarpon Cove. “I made good money, but what do I do with it now?” he said. He’s looking for another home but inventory is low and prices are skyrocketing. “I’m chasing these numbers,” he said of asking prices. “I’d rather have the house than the money.”

Developer Todd Michael Glaser said he expects the market will continue to rise. He closed on an $85 million deal to buy a private island in Palm Beach in July and said he believes he can redevelop an existing mansion there and sell it for as much as $200 million. “I still think Palm Beach is undervalued. The bottom line is there’s no inventory and there’s almost nothing new being built,” he said. “Wealth has gone up unimaginably and there are guys out there willing to spend tens and hundreds of millions. There’s nothing for them to buy.”

Mr. Glaser said he sees a cultural shift in how high-net-worth individuals handle their cash. “These corporate guys and hedge-fund guys aren’t embarrassed about spending their wealth like they used to be.” he said.

Corrections & Amplifications
An earlier version of this article had an illustration that incorrectly spelled Mar-a-Lago as Mar-a-Largo. (Corrected on July 22.)