|In reviewing the year 2022 as a whole it’s difficult to decide whether to compare it to hanging onto a rocket or a roller coaster when visualizing the land market and the items that affected the niche real estate category. There were fluctuations over the year that affected the market in both directions from the Russia/Ukraine war to one of the largest, fastest interest rate hikes in history. We dealt with Covid, inflation, commodity swings, major weather variations, disease, drought, floods, and record setting land prices we didn’t anticipate in some areas in the next decade. All in all a lot can change and a lot can stay the same.|
Land prices in the agricultural space rose overall, which is a bold claim coming off the 2021 year. High Point increased its market share in this space completing nearly 80 land transactions traded at auction. Live auctions with online bidding were the predominant method of sale although many were also sold at online-only auctions and sealed bid land auctions. Overall the increase in land prices was not as substantial by percentage over 2021 however continuing to rise as fuel, fertilizer, chemical, land rents, and taxes all increased year after year showed the strength and stability of the investment category. One statistic that I often return to when I become bearish on land is the USDA publication annually on the number of acres of farmland in the US. From 2020 to 2021 the total land in farms, at 895,300,000 acres, decreased by 1,300,000 acres in 2020 according to the USDA. 2021 to 2022 numbers will be released soon and I would venture to say it will be even more this year. This statistic compared to splitting stocks, government printing of currency, and continuous building of more investment grade real estate reminds land buyers of the simple phrase “they aren’t making any more land” when in reality they are statistically losing vacant land. That backed by the need for food, fiber, and fuel in the world left the agricultural land category very strong as a hedge against inflation in the year 2022 amounts to other benefits.
Land prices in the recreational space rose once again as well and when compared to the tillable land space this is not a direct reflection nearly as much when referenced to cashflow or commodity prices. This year we spent quite a bit of time with a gentleman named Bill Winke when producing a series on the topic of recreational land investment called the High Point Land Series. Bill has a long-term wealth of knowledge on this topic and the content produced throughout this series when interviewing Bill and High Point Land Agents concluded one constant very similar to the above paragraph that recreational land is being converted at an incredible rate as well. This leaves me wondering what is this stuff going to be worth in 10, 25, and 50+ years if there were sales numbers in the year 2022 alone that were not expected in decades to come. Recreational land is being compared by buyers to fine art, classic cars, and other coveted collectibles that are scarce and purchased for a rising premium due to a quality that is oftentimes not influenced by cash flow. In the series, two additional discussions stand out. The first is that for the first time in history recreational land is a relatively new category with the value being placed on seclusion, safety, private water sources, access, natural/captive animal quality, and adjacent neighboring landowners all attributing to the value of the land. The second is that for a measurable amount of time the land in this category has continued to rise and has not been substantially affected by economic declines or other market fluctuations nearly as much as other recreational “assets”.
The conversation about interest rates on land is the current hot topic. Interest rates on land financing have doubled in 2022 making the payment amount when financed increase for a buyer. This has yet to have a major impact on high-quality tracts, however, has shown some pressure on lower-quality land. One major difference in my opinion that will hold land prices up or flatten without a major decrease in the event rates continue to rise are the number of cash buyers purchasing land for a long-term buy-and-hold investment. They believe in land’s tangible nature and are continuing to buy as land becomes available for purchase regardless of interest rates. These buyers range from individuals and local families to REIT’s and other fractional ownership crowd-funded groups that intend to hold this land and rent it out to a local farmer for a very long time. For the first time in history, there is a major player in the land space all over the US that has what seems to be an endless supply of funds to continue to purchase the very ground that supplies many of the necessary consumables grown in the US. When you look at the crashes from the past there is a distinct difference in the financial leverage, cashflow diversification, labor intensiveness, technology, and information available in the land today than in the United States history. Those differences are why we hold such a strong opinion of the land long term.
In 2022 High Point Land Company grew substantially once again due to the honest, hard-working, dedicated staff and clients we are honored to work with every day. We grew our agents and staff to 26, states of operation to 5, and the number of transactions to well over 200. We are committed to doing great work for great people and have a long list of plans for the future of this great company. We want to thank all of you who love land and all that it offers as much as we do for your referrals, knowledge, kindness, business, and support over this year. We look forward to the relationships created around land for generations to come.