WABASH, Ind. — The story on farmland prices and values remains a good news story, even in spite of some recent hurdles.
“For sellers, we’re telling them it’s a great time to sell. Land prices are at an all-time high, even adjusted for inflation,” said Pat Karst, vice president of Halderman Real Estate and Farm Management. “If you think you are going to want to sell in the next one, two, three years, why not look right now?”
For those who want to buy farmland, even with record prices, Karst advises buying.
“On the buying end, my advice is the same as it’s always been: If there’s a farm near you that’s for sale and you can swing it, buy it, because it’s not going to come up again in your lifetime, historically speaking. The farm sells once in a generation. Maybe. Most of them are once in every two or three generations,” he said.
And for those who are planning to buy, the supply is there.
“There’s a lot better supply on the market at this time in 2022 than we had in 2020 or 2021,” Karst said.
While recent interest rate hikes may have slowed the surge in land prices and land values, Karst said rates haven’t stopped that surge.
“I’m smart enough to say land values have gone up despite the interest increase, but I’m not smart enough to say land values have gone up at the same rate they would have if the interest rates hadn’t gone at a slower rate,” he said.
“I can’t say that if the interest rates had stayed at 4% instead of 7.5%, then land values would have gone up at a higher rate instead of the rate we’re seeing now.”
The Purdue Farmland Value and Cash Rents Survey showed that top-quality farmland averaged $12,808 per acre in June 2022. That was a 30.9% increase from June 2021.
The prices of poor-quality farmland showed the greatest increase, at $8,631 per acre in June 2022, a 34% increase over 2021. Average-quality farmland, at $10,598 per acre average price, was up 30.1% from June 2021.
If there is a sector where the impact of rising interest rates will be felt first in the land sale sector, Karst said he believes it will be in recreational land.
“If you’re going to talk about interest rates affecting real estate prices, to me, the recreational land is going to be the first to feel that, because it’s not really an income-producing property. It’s a want, not a need. It’s a recreational piece. It’s not a piece you are going to farm and make money off of,” he said. “I think if we watch the recreational land values, we’re going to see a precursor of that.”
Karst said apart from farmers who are buying land, investors who are buying see farmland as a safe place to put their money, in times of uncertainty.
“They are willing to take a much lower return than what the stock market was doing and it’s relatively safe,” he said.
Karst said he understands the hesitation of farmers to buy more land, with prices high and rising interest rates.
“Every generation of farmers has bought land and thought, holy cow, what have I done? How am I ever going to pay for this? It doesn’t matter if land was $800 an acre in the late ‘60s or early ‘70s, or whether it was $10,000 an acre in 2020, everybody has the same concern. How in the world am I going to pay for this? Other than two or three times in history, in the last 120 years, they’ve been able to make their payments,” he said.