Land Prices

[daniel93077]

What’s a bargain to you?? It’s subjective. What I’ve seen lately is these land companies are taking the average price per acre, from tillable, timber , and pasture, as tallied by ISU every six months and making that the sell price. Every neighborhood is different of course but they’ve been getting that number. My neighborhood is great with a mix of tillable, crp, timber and running water ( Shoal Creek runs through many properties) creating awesome hunting. To each their own however numbers aren’t coming down.

I’ll also add the days of farmer Joe not quite knowing what he has are over. A quick call or net query with the many land companies have nipped that in the bud.

I agree with you it's subjective. If I'm borrowing at current rates a bargain to me would be a property 20% under market price. If the rates were lower I'd consider a smaller margin to be a bargain.

I do believe the land market is as efficient as it's ever been and no doubt the pricing is lined up appropriately with the supply and demand. The problem right now is there is a supply and demand imbalance. Low supply and relatively high demand is a good recipe for things to become overvalued. Of course, it's always possible this supply/demand dynamic can continue for quite some time or get worse. I'm hoping for at least a leveling out on price for 3-5 years, an increase in inventory at least back to historical levels combined with some rate drops.

Market prices are what they are but for me to be willing to pay current market price it'd have to be a cash deal and the property would need to check most of the boxes. I'd be very picky on this because I feel like I can get better return on my capital elsewhere at the moment and let it grow for a future purchase when things are a bit more settled or if there's a situation where everyones running for the hills and there is an actual price drop it'll be nice to have a larger liquid position.

 

[daniel93077]

Because we don't know what the future land prices are going to be, you won't know if it's a bargain for 5 or 10 years. You would be securing half of your purchase in today's money, dollar cost averaging in a sense. You'll be half right or you'll be half wrong. You wouldn't want to over pay and you wouldn't want to buy just any piece. You want to buy less in quantity only...life might turn on you or just happen so you want to act like this IS THE PIECE. Your other choice to get you where you want to go would be the stock market. IMO the stock market is going to go down sometime in the next couple of years, whether land goes with it is debatable. Both are long term investments and neither are without risk. The whole deal with buying the land is you get to enjoy it while you wait...this process could take a long while to work through. Good luck!

Thanks! Agree on the bargain comment. The only metric I have to call something a bargain today is how far below market it's priced...and I know there aren't many of those deals out there with how efficient the land market is these days.

I do like your idea of finding the right small property, buying it for cash now and then just seeing where things are in a few years and buying more.

Currently I'm mostly stock market, some cash in high yield savings and a little real estate.

 

[Windlooker]

You are definitely estute and wise in this endeavor. Real estate has never failed me. In the 2008 market decline my land did not decrease. It may not have increased but it held its place. What investments elsewhere match real estate consistency? It’s not as liquid but it’s consistent. Just so you don’t buy on top of a nuclear waste dump , and you have time, you’re pretty good. Regarding supply and demand. When will Iowa supply out pace demand? 6% timber that’s it. One must be on it to grab a nice farm today and I don’t see that changing soon. Idk. I hear you but recent trends indicate no slow down.

 

[daniel93077]

Every time I purchased I believed the price was too high. Dont fall into the paralysis by analysis mindset. Yes, look hard and examine all variables but gotta pull the trigger at some point.

Thanks. Great advice for sure.

When I've made bigger leveraged purchases before (houses) I don't know that I've ever felt it was overpriced (I do feel like houses are overpriced today due to the same market dynamics) but there was certainly always just a little sense of not being fully comfortable with leveraging up at bigger and bigger numbers (even though the income/cashflow fully supported it)....In those situations things have always worked out.

When I was stationed in Las Vegas right before the great financial crisis my friends were telling me I needed to buy a house. I had a buddy that was suggesting I leveraged up as much as I could and buy the biggest house possible because the houses in Vegas weren't going down in price. It was just a couple year later that the financial crisis hit and I could have picked up those houses at basically half-the-price and at a lower interest rate. Fortunately for me I didn't pull the trigger as it just felt like things weren't in balance. I ended up being in a really good position to make my first home purchase after the drop. All that being said, there's certainly been plenty of times my intuition has been wrong so ultimately there was just a lot of luck for choosing not to take that leap.

When I was in the midst of my major life transition in 2020 I really felt the land prices here were pretty good here (especially once the rates first started dropping). I think had I purchased land at that time I would have kind of felt like I have every time I purchased houses. However, right now I'm feeling a little bit like I did back in those Vegas days before the financial crisis (though definitely to a lesser degree.... I don't think land prices are as obscene as those housing prices were for that time). Of course, had I bought that Vegas property before the financial crisis and held onto it all the way up until today...I'd be doing just fine.

 

[daniel93077]

You are definitely estute and wise in this endeavor. Real estate has never failed me. In the 2008 market decline my land did not decrease. It may not have increased but it held its place. What investments elsewhere match real estate consistency? It’s not as liquid but it’s consistent. Just so you don’t buy on top of a nuclear waste dump , and you have time, you’re pretty good. Regarding supply and demand. When will Iowa supply out pace demand? 6% timber that’s it. One must be on it to grab a nice farm today and I don’t see that changing soon. Idk. I hear you but recent trends indicate no slow down.

I do believe not being as liquid is one great benefit of real estate.

Great points on why it's going to be tough for supply of Iowa rec ground to ever really meet the demand. There'd have to be some kind of shift in dynamics within the hunting community or something that shook us economically.

 

[jflournoy]

I agree with you it's subjective. If I'm borrowing at current rates a bargain to me would be a property 20% under market price. If the rates were lower I'd consider a smaller margin to be a bargain.

I do believe the land market is as efficient as it's ever been and no doubt the pricing is lined up appropriately with the supply and demand. The problem right now is there is a supply and demand imbalance. Low supply and relatively high demand is a good recipe for things to become overvalued. Of course, it's always possible this supply/demand dynamic can continue for quite some time or get worse. I'm hoping for at least a leveling out on price for 3-5 years, an increase in inventory at least back to historical levels combined with some rate drops.

Market prices are what they are but for me to be willing to pay current market price it'd have to be a cash deal and the property would need to check most of the boxes. I'd be very picky on this because I feel like I can get better return on my capital elsewhere at the moment and let it grow for a future purchase when things are a bit more settled or if there's a situation where everyones running for the hills and there is an actual price drop it'll be nice to have a larger liquid position.

Not sure this can be true given how many properties are languishing on the market for many months currently in southern Iowa. I'd say it was true for part of 2021 and most of 2022, but things changed dramatically once interest rates started really getting up there. When demand outstrips supply and listings are *still* sitting on the market for many months unsold you know that prices are too high.

 

[daniel93077]

Not sure this can be true given how many properties are languishing on the market for many months currently in southern Iowa. I'd say it was true for part of 2021 and most of 2022, but things changed dramatically once interest rates started really getting up there. When demand outstrips supply and listings are *still* sitting on the market for many months unsold you know that prices are too high.

I agree…Asking prices are definitely high in many instances. I should have clarified that I’m referring to sales prices.

I’m not sure how many days of inventory are currently on the market or how it compares to historical norms but it’d be interesting to see.

 

[jflournoy]

I agree…Asking prices are definitely high in many instances. I should have clarified that I’m referring to sales prices.

I’m not sure how many days of inventory are currently on the market or how it compares to historical norms but it’d be interesting to see.

I agree with you there. A lot of people see just the "list price" of the neighbor's piece or the county average in the ISU land survey and think that's what their land is worth. Frequently that is way off the mark. Their land might be worth a lot less. Or it might be worth a lot more. "Comparable" is a very important word that carries significant meaning. It's also important when discussing land values to define what phrases like "high $" and "high quality tillable" mean, to make sure everyone is commenting from the same frame of reference. I talked to a landowner in a very rural southern Iowa county last year with some 50 csr2 tillable ground and he thought I was way off base when I told him at the time that was probably $6-$6,500/acre market value in that county. He said he'd heard that good quality tillable in Dallas County was selling for close to $15k/acre. I told him that was true, but that was mid 80's csr2 tillable ground, and also very close to Des Moines metro. Night and day difference, like comparing grapes to watermelons.

 

[Daver]

Not sure this can be true given how many properties are languishing on the market for many months currently in southern Iowa. I'd say it was true for part of 2021 and most of 2022, but things changed dramatically once interest rates started really getting up there. When demand outstrips supply and listings are *still* sitting on the market for many months unsold you know that prices are too high.

I am not sure exactly which properties you are referring to, but FWIW, I have personally walked a couple of the properties in SE Iowa in the last few months and there are reasons why they aren't moving that go well beyond the asking price.

That a few properties are "sitting" does not prove, or disprove, anything related to price alone. "Good" properties are still moving well and still at historical high prices.

The buyers that were financing their purchases have slowed way down. But there are still enough/plenty of cash buyers...for the "good" pieces.

Boundaries, neighborhoods, access, etc. are very important to "non-desperate" buyers.

 

[jflournoy]

I am not sure exactly which properties you are referring to, but FWIW, I have personally walked a couple of the properties in SE Iowa in the last few months and there are reasons why they aren't moving that go well beyond the asking price.

That a few properties are "sitting" does not prove, or disprove, anything related to price alone. "Good" properties are still moving well and still at historical high prices.

The buyers that were financing their purchases have slowed way down. But there are still enough/plenty of cash buyers...for the "good" pieces.

Boundaries, neighborhoods, access, etc. are very important to "non-desperate" buyers.

I'm not referring to a certain few properties - there are many -, and I'm certainly aware that there are always other considerations in addition to price, but there are always properties on the market that have some negatives, don't think it's any different or more right now than usual in that regard. "The market" isn't just the "good" pieces, it's everything for sale. And yet there are a lot of properties that have been lasting on the market for months. Way more than in late 2021 and through a good part of 2022. Interest rates and a smaller pool of buyers are certainly a part of that, but way above market list prices are a huge part as well and all those factors together have made the market take a big breather. I talk to a number of other land agents on a regular basis and there is absolutely a consensus that *the market* has slowed way down. Demand has slowed way down. Has it brought prices way down? No it hasn't, and that's why there are a lot of pieces sitting on the market for months. There were plenty of buyers for good southern Iowa land before the big run up in 2021/22, and there are still plenty now that a lot of buyers are on the sidelines. But list prices haven't followed the drop in demand.

"Good" properties *are* still moving, and yes, still at "historical high prices"....when they're priced somewhere close to where the market currently is at. Are a minority of buyers reaching and paying an above average price? Sure, but that happens in just about any market for good pieces of land. It's the exception right now rather than the norm, though. Our office is getting more hunters asking about properties in northern Missouri because they're so frustrated with the lack of inventory and the way high prices in southern Iowa. So yes, there are still buyers out there, but nowhere near what it was 12-24 months ago.