Friday
October 24, 2014

Farmland Boom Shows Signs of Cooling

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Farmland Boom Shows Signs of Cooling

Following double-digit rates of appreciation, agricultural land prices may soften in the coming months, says Lawrence Yun, National Association of REALTORS®’ chief economist.

What's happening to the boom? Well, Yun says you can blame it on corn prices. They've been on the decline, which means a lower dividend from the land, translating to lower prices for properties.

More on the Farmland Boom:

Overheated or Smart Buy? Farm Values Surge

Economists Fear Farmland Bubble

For example, in Central Illinois the price of corn has been cut in half from $8 per bushel to $4, and could fall even further. In the early 1980s, agricultural land prices fell when the price of corn dramatically dropped and interest rates rose sharply, leaving many farmers unable to generate enough revenue to pay off the interest on the money they owed.

However, Yun notes on NAR’s Economists’ Outlook blog that though corn prices will likely have a negative impact, this time around farmers are at a much more moderate borrowing level than in the past. Also, interest rates remain near historic lows.

“Any decline in land prices will be modest and not like the 1980s,” Yun says. “Most farmers will be able to absorb some decline in land prices without facing financial problems.”

Source: “Agricultural Land Price Trend,” National Association of REALTORS® Economists’ Outlook Blog (July 11, 2014)