Blurb from the Farm Bureau - Iowa land ownership

[Daver]

All...just because this subject gets discussed here at times...from a recent Farm Bureau publication (Spokesman), refer to the snippet below regarding land ownership in Iowa.


"As Iowa’s farmland owners continue to age, other trends in land ownership have emerged, according to an Iowa State University (ISU) study on farmland ownership and conservation released last week.

According to the study, 58% of Iowa’s farmland is now leased, a significant increase from the last time the study was conducted in 2017.

In addition, 84% of the land is free of debt, up from 82% in 2017; and conservation efforts have doubled in the past five years."


That 84% of all land is free of all debt is pretty amazing to me...I think this has a big impact on how land prices will move in the future.

 

[Obsessed]

That 84% of all land is free of all debt is pretty amazing to me...I think this has a big impact on how land prices will move in the future.

Driving prices up, since the land is owned outright, and there's no urgency to sell?

Or, driving prices down, because of some other reason?

 

[Sligh1]

“58% of farmland is leased”. I assume that means “rented out”. The people renting it are often times very different than people who own the land. By renting & not owning - that’s $200-500/acre more they have to pay to r farm it!! Those folks are the ones to keep your eyes on. They are getting hit from few sides right now:
1) high rent prices
2) lower commodity prices
3) high machinery, fuel & all input prices
4) low rainfall & possibly low yields.
5) a double or even triple in interest rate costs on LOC’s.
No doubt the folks who own land with cash have nothing to worry about. But any group selling…. We saw what happened to propert values in 2015 after grain went in half. Lot of renters & folks with loans had issues. Who knows if that will repeat but the renters & borrowers are ones to watch.

 

[hillrunner]

I wonder percentage of the land bought in say, the last ten years, is debt free. A lot of owned farmland has been owned by the family for a long time. A lot of it is owned by heirs who are not the original purchaser.
I have no idea where things go from here but I do know there's a lot of us sitting on the sidelines waiting for the deals to start.

 

[Windlooker]

Most land never hits the market. It’s handed down to family.

 

[Daver]

Driving prices up, since the land is owned outright, and there's no urgency to sell?

Or, driving prices down, because of some other reason?

My belief is that the price per acre, in general, will remain high relative to long term averages. Minimally, the higher interest rates on loans will not impact the 84% of the land that is owned free and clear. (A topic I have posted my thoughts on previously, FWIW.)

I want to be wrong about this, believe me...but I don't see falling prices of any real substance on the horizon. I do think that the rapid increases we have seen in the past 2-3 years are softening and slowing...but prices dropping substantially from where they are now...not really seeing it. Again, I want to be wrong.

Now then, with continued higher interest rates, higher inputs, higher equipment costs and lower commodity prices...will there be a "ripple" that could cause property values to decline? Sure. How big of an impact will this be? Personally, I just don't see it being huge. Better/lower land prices in the future? Definitely possible...but for those that are "waiting" for big price drops so they can "afford it"...I am not seeing it, again, FWIW and I hope that I am wrong.

I just spent a week in far northern WI and there, guess what, they too have experienced a big increase in the normal price per acre of their ground in the past couple/few years. Their agriculture is pretty limited to hay production and their deer, while plentiful, are puny by comparison here. Short story...people just want to own land. The 50%ish increase in land costs seem to be "baked in" there too.

Also, my comments are more directed towards rec ground than ag ground.

 

[CottonwoodCanyon]

Driving prices up, since the land is owned outright, and there's no urgency to sell?

Or, driving prices down, because of some other reason?

I don't see any reason why they would decrease. Even with interest rates where they are, supply is incredibly low and demand is steady or even increasing. Look at how many podcasts and content are popping up about buying land. The information in the market is unlike it's ever been. Any decent rec farm under $5000/ac is still being wheeled and dealed. Add some tillable or CRP income, sprinkle some big buck pictures in the listing, and look out, here they come.

 

[Chris Janis]

@Daver Spot on with the analysis! I believe we’ll see a plateau for some time, maybe even the slightest decrease in certain areas but nothing major. The good thing in that report is unlike ag, rec doesn’t really offer a measurable ROI for a buyer, unless of course it has some CRP tillable but even then that minimal. The new Farm Bill this fall will have some impact on these numbers too. With most property owners being investors on the ag side, the rec side only really sees people trying to lease, maybe harvest some timber, or very few trying to put a ABNB or VBRO on there. So recreational property is purely a slow earning tangible asset that people want to enjoy. Also not rec average turnover is about 5 years since it started being recorded compared to ag which is typical generational.
So, if you were upset you missed out on a piece keep your watchful eye out, it may be on the market sooner than later. Always let your neighbors or property owners you have interest to get the first opportunity on a piece.

 

[IowaBowHunter1983]

There is another thing hanging out there that potentially affect things. 1, 3, and 5 year adjustable notes are fairly common. How many of those are out there? Not sure. When those come due rates on those pieces will go up 2-3x. Will some of thise people suddenly have a farm they can't afford? In some cases I'd bet on it. Are there enough to increase inventory to the point it affects market pricing? Not sure.

 

[Daver]

There is another thing hanging out there that potentially affect things. 1, 3, and 5 year adjustable notes are fairly common. How many of those are out there? Not sure. When those come due rates on those pieces will go up 2-3x. Will some of thise people suddenly have a farm they can't afford? In some cases I'd bet on it. Are there enough to increase inventory to the point it affects market pricing? Not sure.

I too really don't know how many ARM's are out there for rec ground...but taking a sizeable loan on an ARM basis...for relatively low income deer hunting property...eek. I won't say anything mean...but I sure wouldn't do that, nor advise anyone else to do so. Hopefully, there is a low number of people in that category.

Cases like that would definitely lead to more "inventory"...but I suspect it is not a big number. Something to keep an eye on though.

 

[IowaBowHunter1983]

I too really don't know how many ARM's are out there for rec ground...but taking a sizeable loan on an ARM basis...for relatively low income deer hunting property...eek. I won't say anything mean...but I sure wouldn't do that, nor advise anyone else to do so. Hopefully, there is a low number of people in that category.

Cases like that would definitely lead to more "inventory"...but I suspect it is not a big number. Something to keep an eye on though.

Ive done it strategically on farms I knew I wasn't going to keep. Risk is always of a market turn and having to hold a farm longer than intended.

 

[2-bucks]

Ive done it strategically on farms I knew I wasn't going to keep. Risk is always of a market turn and having to hold a farm longer than intended.

I have done it too. Currently have a 5yr note coming up in about a year. BUT, like others already mentioned I would only due this in specific strategic circumstances. The note will either be paid off or very close at the end of the 5 years and not put the property at any risk of needing to be sold. Even if a small balance needs to be financed at a higher rate, the savings on the lower interest (much higher balance) note for the previous 5 years more than covered the little hit I'll take to pay off the last bit.

 

[Daver]

I have done it too. Currently have a 5yr note coming up in about a year. BUT, like others already mentioned I would only due this in specific strategic circumstances. The note will either be paid off or very close at the end of the 5 years and not put the property at any risk of needing to be sold. Even if a small balance needs to be financed at a higher rate, the savings on the lower interest (much higher balance) note for the previous 5 years more than covered the little hit I'll take to pay off the last bit.

Just to be clear, I was addressing the scenario where someone took a big loan on ARM basis so as to "make the numbers work", but then got caught out in the open, so to speak, by rising interest rates. For those that are doing it strategically, I get it, no prob. (I do know someone that took the risk on an ARM that they are really struggling with now though. Yikes.

 

[jflournoy]

There is another thing hanging out there that potentially affect things. 1, 3, and 5 year adjustable notes are fairly common. How many of those are out there? Not sure. When those come due rates on those pieces will go up 2-3x. Will some of thise people suddenly have a farm they can't afford? In some cases I'd bet on it. Are there enough to increase inventory to the point it affects market pricing? Not sure.

Even with inventory being incredibly low, the fact there are a number of southern Iowa farms that are just sitting on the market right now going nowhere tells you there is definitely a price ceiling and much weaker demand.

I agree with you about the ARM's, some guys that financed at 4% are going to be in for a rude awakening when their interest rates nearly double when they adjust. Not too many southern Iowa farms to be found right now above 2.5% roi. Rates adjust to 7.5%+, gut check time for some "recreational" buyers carrying 2 mortgages. If they have to get rid of one of them, it's going to be the rec land, not their family residence.

My impression is that with more and more kids who grew up on the farm moving to the city for work/life, now adults, losing their connection with the home place, lots of those places are going to come up for sale in the next 10-20 years in my opinion once their parents pass on.

 

[Windlooker]

I border two rec farms in southern iowa that sold in 1 day and 3 days respectively ,in the past month at 5750 per ac. I think it’s nuts but it keeps rolling.

 

[jflournoy]

I border two rec farms in southern iowa that sold in 1 day and 3 days respectively ,in the past month at 5750 per ac. I think it’s nuts but it keeps rolling.

Land in certain management neighborhoods is still going here and there for high prices in that range, but the average piece of rec ground right now is not going that high.

 

[Daver]

Even with inventory being incredibly low, the fact there are a number of southern Iowa farms that are just sitting on the market right now going nowhere tells you there is definitely a price ceiling and much weaker demand.

...

That ^^ is one interpretation of why certain farms are sitting. I believe there are others, notably that some farms that someone would buy for deer hunting have quite unfavorable property characteristics and/or boundary/neighbor issues. These are the ones that are "sitting" that I can see.

If you know of a "good" farm, in a "good" neighborhood that is not encumbered by factors like I mentioned above and is listed at a good price...I would be interested in learning about it...and I know that there are several other people like me. It is much more common that the "good" ones are selling nearly instantly prior to ever going on the market.

 

[jflournoy]

That ^^ is one interpretation of why certain farms are sitting. I believe there are others, notably that some farms that someone would buy for deer hunting have quite unfavorable property characteristics and/or boundary/neighbor issues. These are the ones that are "sitting" that I can see.

There certainly are properties on the market right now that are seeing a negative value drag as a result of "unfavorable" property characteristics, but there are lots that don't have negatives but are just way overpriced. This is my opinion, but I work in this field so it is my professional opinion.

If you know of a "good" farm, in a "good" neighborhood that is not encumbered by factors like I mentioned above and is listed at a good price...

Well, "a good price" is of course subjective depending on your point of view, but I work in a number of counties and off the top of my head I would say there are *very few* farms currently "available" for sale that are not priced somewhat to well above the current market value. Yes, it's of course common to list a little above where you want to sell at, but a majority of places available currently are listed quite a bit higher than that threshold. If a property in southern Iowa has no obvious real negative qualities but is sitting for months on the market, there's only one good reason - it's priced above the market.

I would be interested in learning about it...and I know that there are several other people like me. It is much more common that the "good" ones are selling nearly instantly prior to ever going on the market.

In "managed" neighborhoods, it certainly happens commonly that properties get sold to neighbors without ever seeing the public market. That doesn't necessarily mean they're selling for what you would consider "a good price", nor do those sales on the average necessarily track with what's happening in the broader market. They're special cases. But I guarantee you even in those "managed" neighborhoods right now, you can't just ask the moon and expect you'll easily get it.

I'd be interested to know, if we're talking about southern Iowa, what your impression would be of a "good price" in the current market for good combo hunting land, on average, something with some woods and some income also?

 

[Windlooker]

Actually, you mentioned above you work in the field, I was gonna ask you what a fair price is in southern Iowa. Say, 160 ac piece, 30 ac crp, 40 ac tillable, running stream through property, 90 ac timber, 40x64 metal building for toys , half finished as a camp. Good neighborhood.

The two properties that recently sold were listed by Iowa Land Company. They used 5750 as listing price by looking at ISUs semi annual land survey. Got full listing on both.

 

[IowaBowHunter1983]

Actually, you mentioned above you work in the field, I was gonna ask you what a fair price is in southern Iowa. Say, 160 ac piece, 30 ac crp, 40 ac tillable, running stream through property, 90 ac timber, 40x64 metal building for toys , half finished as a camp. Good neighborhood.

The two properties that recently sold were listed by Iowa Land Company. They used 5750 as listing price by looking at ISUs semi annual land survey. Got full listing on both.

I woulda said 6k on above description without knowing CSR etc