High Prices and Safe Returns
by
Mason Spurgeon, Certified General Real-Estate Appraiser
September 2023
Well, I’m sure you have heard about the 115-acre tract that sold for $4,002,000 or $34,800 per acre in Saline County. This was a highly tillable tract in a desirable area of good soil and very limited sales activity. Now everyone throughout the Midwest is going to think their farm is worth $35,000 per acre. The only question I have is, “Are they wrong?”
The obvious answer to my question is, “Yes, they are wrong.” Very few farms in Missouri are going to sell for that much per acre. It was reported that two farmers were in a bidding war and ran the sale up at a public auction. This one sale does not make a market, and it doesn’t mean all land prices are going to the moon, but it could mean prices are still going to go up.
Farm prices do not appear to be falling.
We have seen record sales of farmland in the area, and recreational land (wooded hunting properties) constantly selling for over $5,000 per acre. This is likely due to the scarcity of listings and the lack of safe places to invest large sums of money.
People are not selling their properties without a very good reason.
Why would they, when they likely have a low interest rate locked in for a long period of time and/or they are getting good rents/returns. Also, if a property is sold and a huge profit is realized, and without other properties on the market to reinvest in (1031 Exchange), there would be a substantial tax bill. Nobody wants to pay the government 15-20% of their hard-earned money.
Where should someone invest money if a recession is on the horizon?
Well, the stock market is going to take a huge hit in an economic downturn and who knows when it will come back? Physical commodities could be good, but they also swing with the markets and are sometimes difficult to buy and sell in large quantities or large dollar amounts. Real estate isn’t safe from a downturn either, but it does have two things that are needed for survival: food and shelter.
Where are land prices headed?
Unless a huge amount of farm listings hit the market, I do not see land prices going down in price. Investors still have money to invest, and they need safe returns in this fluctuating economy.
Just think, if everything in the world drops in price, land will still be a great investment. It will be relatively priced with everything else (maybe even higher because of food needs), and it will move with inflation, which is already built into the economic system to grow.
You don’t need the newest computer from Best Buy, soda from Coca-Cola, or the latest tech stock to survive, but you do need food, and that comes from land.
Good luck and happy investing!! Let us know if you need any help with valuing your next investment property.
