2022 Land Prices! What’s Happening?
by Mason Spurgeon, Certified General Real Estate Appraiser
April 2022
“Can you believe what {fill in the blank} farm sold for? What’s happening?” I hear these questions almost daily, and I’m not always sure how to answer the second question. The answer to the first question is easy, “Yes, I know about that sale. Our large staff spends hours each week tracking down the most recent sales data in the market.” With the current crazy market conditions, we must make sure to use the most up-to-date sales we can locate. Chances are if the sale happened through a realtor or auctioneer, we have it in our database. Now the second question is harder to answer.
There are likely several factors playing into the current CRAZY price of land.
Below is a chart from the USDA showing farmland prices from 2007 to 2021. You can see that prices have been on the increase for years.
These rising prices can be explained by a few factors:
1) Fewer Farms for Sale: When talking to real estate agents and auctioneers the same comment is always repeated: “We have more buyers than we have properties to sell them.” This is a problem throughout the Midwest, and possibly the entire country.
2) Money in the Market: There are a lot of people in the current market with extra cash, and they must spend it on something. Many people think that land is one of the best investments as it is tangible and has been increasing in value consistently over the last forty years.
3) Low Interest: Money has been and is still cheap even though they have recently increased the interest rates.
4) Stock Market Uncertainties: The stock market is uncertain currently with wild increases in the stocks of companies that don’t even have a product to sell. The stock market is full of speculators that don’t care about tangible assets.
5) Weekend Escape: Some people want to have a place to get out of the city in case some other pandemic or major event happens. In the past couple of years, I have noticed that many recreational farms have some type of living structure in place or being built on them.
6) Fear of Missing Out: Many people see the huge increases in the land prices and want to get in on the action. Possibly just for the appreciation, but also, they may think that land prices will keep going up, and they want to make sure they get something purchased before it gets any higher.
7) Higher Grain Prices: The price of corn is up 33.21% over this time last year. See chart below from www.macrotrends.net.
I’m no economic expert, but it appears that the above reasons all come down to the big bad word of INFLATION!
Inflation is defined as, “a general increase in prices and fall in the purchasing value of money.” In layman’s terms, for me mostly, “same or lower amount of something and more money to purchase it.”
So, if there are a lot of buyers with money to spend and few farms to buy it’s reasonable to assume that the price of land will increase.
I’m not sure what will happen in the future but there must be some type of correction or slowing of land prices. This may happen if the Fed continues to raise interest rates, but the raising interest rates will likely be short-lived if the economy comes to a stop.
It’s likely that the price of land will continue to increase.
Look at the data from 2008 and 2020. When the stock market took a huge hit, people looked for safer returns and found it in land, which has continued to increase in price over the past 14+ years.
I’m not a financial advisor, but I am an expert in appraising real estate, so if you have any questions about the current value of your property, please do not hesitate to give me a call.
I will conclude this newsletter with some good advice: call an appraiser to get the current value of your property. Appraisers are the only professionals in a real estate transaction/sale that do not have anything to gain from the transfer of the property.
We are here to help, just give us a call or click here to tell us about your property.
