Land Prices for the Month of March 2021 were the hottest I have experienced since starting High Point. Here’s why and some insight on where I think we are headed in the short term. First, May contracts for Corn on the Chicago board are at $5.45/bu and $13.96/bu on beans. 1 year ago those numbers were half of that or lower. Next, we have interest rate on land loans not only under 4% for most buyers or refinancers but loan lock terms consistently over 5 years if not over 10 years on 20-30+ year amortization schedules making the payments very affordable. Lastly to name a few more: the timber market is on fire, land rents are increasing far beyond property tax increases and lets not forget about PPP/grant money being received by consumers, farmers and businesses in mass quantities.
If I were to look in a crystal ball and attempt to guess what the future looks like, I would guess that we are headed higher in the short term and leveling from there. Lower quality property may not see a huge increase, however it may have buyers today at good prices that it would not in the future, and here’s why. There is a shortage of all qualities of land real estate being absorbed before it goes to the market. Land is used as a hedge against inflation and is being used for that purpose again. It is also a perception that rents are going to continue to rise bringing “over priced” purchases today into normal ROI’s for tomorrow. The management of land is also very attractive. Hiring High Point as a manager, self managing hunting, or agricultural land is very simple compared to much real estate management.
The downside for land prices when we reference to history as a guide: First, prices have come back to where they were before, so sellers that have wanted to exit at prices that were not achievable in the last 5 years, are now holding out for an increase instead of taking what they would have previously. This is a good idea if you are okay to hold what you wanted to sell in the past. Second in line are the sellers that are considering selling their property and want to take advantage of current locked in tax benefits before they potentially change, like the step up in basis tax advantage. When looking back at sales history, the number of sellers that were too late ended up selling on the way down from a peak, instead of selling on the way up at a good enough new high.
The market is the best we have ever seen it. If you are considering selling a property, we would like an opportunity to have one of our land agents talk to you about your property and the current price that can be achieved. Prices may climb higher, but they also will more than likely decrease quickly or stabilize when they do change. Land has proven to be a wonderful long term stable investment if you are a “buy and hold owner”, however if you have been waiting for a sellers market, the opportunity is presenting itself currently.
Have a wonderful start to spring and enjoy this great weather!