You may have seen this graph before. We’ve used it to illustrate past trends between land values, interest rates, and commodity prices. Along the way, we’ve witnessed unprecedented ups and the subsequent decline of the land values market by 20-50%.
But if you look carefully at the right side of this updated graph, you’ll see that land values and commodity prices are beginning to level off. Many have been waiting to see when the decline in the land market would slow, and it looks like that time may be now.
In 2016, sales were slower with many buyers lying low because they didn’t feel confident making a purchase during a declining market. Also, sellers were reluctant to sell at lower prices. As a result of lower commodity prices, land values declined 20-50% from previous highs. The variance in decline was due to location, land condition, reputation, and who owned land around the property sold.
The good news is that in the first six months of 2017, we’ve experienced an uptick in sales activity. This is due to land values adjusting to lower commodity prices and sellers being realistic knowing land values had to adjust. In addition, buyers are feeling more confident that we are at or near the bottom. This uptick is further evidenced by the fact we’ve sold as much property in the first six months of 2017 as we did during all of 2016. So far, we’ve sold 31 properties for $25.1+ million – 7 by auction and 24 by private treaty.
70.9% of sales were due to dissolution of estates or inherited property; 12.9% were a result of debt reduction;while 16.1% felt this was the best time to liquidate.
We are constantly asked what will land values do this fall? Should we wait for values to increase or sell now? While we never claim to have a crystal ball, we believe land values have stabilized.
Land values are directly tied to income, operating expenses, and available inventory of land for sale. Areas are experiencing drought, erratic commodity prices, and the rumors of $5/bu corn this fall. Some are already correlating this to higher land values. Even if commodity prices rise, it will take a while for land values to follow. Too many operators lost money in the last three years and need time to recover. Before buyers become aggressive to purchase, buyers need to be confident higher commodity prices are here for a while.
Land coming on the market to sell will be the result of operators reducing debt, others selling to retire or just feel the time is right to sell, and an aging generation. It is estimated that over 65% of the land ownership will transfer in the next decade.
If you’re considering selling, be realistic. There are buyers. It will take a while to turn the ship. How fast or slow will depend on supply, demand, weather, and how perfect the storm is.