Pulse: Land Prices Climbing Nationally

Last month, the LANDTHINK Pulse posed the following question to our audience: What are land prices currently doing in your region?

Our informal online survey unveiled that land price growth continues everywhere in the country. More than half of the respondents in every region of the U.S. reported that land prices were increasing in their area. The Southeast and Southwest had the most people reporting price increases. Despite mortgage rates skyrocketing to around 7%, double what they were at the peak of the pandemic, and very meager inventory of rural land, land prices have yet to plateau. Inventory is below typical spring levels, and a lack of new listings has buoyed prices. The land market overall has been steady and all regions of the country are still performing surprisingly well.

Here are the results:

Southeast
Increasing 71%
Not moving 21%
Decreasing 8%

Northeast
Increasing 63%
Not moving 30%
Decreasing 7%

Midwest
Increasing 68%
Not moving 27%
Decreasing 5%

Southwest
Increasing 79%
Not moving 15%
Decreasing 6%

West
Increasing 51%
Not moving 36%
Decreasing 13

Why do land prices continue to remain high? In recent years, land prices have continued to see steep increases across the country despite market conditions that should have slowed their ascent. Several factors are pushing prices upward.

Lack of Inventory Puts Upward Pressure on Price

Inventory woes within the land market are the main reason prices are currently rising. Long before the pandemic, the land market has been no stranger to low inventory – it remains one of the biggest challenges in the current market. Buyers are actively searching for and purchasing land, but there just isn’t enough land for sale to meet the pent-up demand.

The Rethinking of Work and Lifestyles

The COVID-19 pandemic demonstrated that there could be greater flexibility in work schedules, with employees coming to office less frequently without losses of productivity. Workers have continued to take this further and move out of congested urban areas to enjoy more space, an inclination that is reinforced when they don’t have to commute long distances into town every day. Urban dwellers continue to migrate to safer, private and expansive rural properties.

Greater Investor Activity

Typically hard assets are an excellent hedge against inflation, meaning their value rises as the general price levels for goods and services increases (known as Consumer Price Index or CPI). Other investments, especially bonds and similar fixed-income debt instruments, typically lose value as CPI increases. Investing in real estate offers advantages during inflationary periods and a diversified portfolio offers strong and stable returns. Timberland and farmland are a very good hedge against both inflation and economic downturns. Also, they can provide a continuous cashflow from leases and timber income, not to mention the tax benefits from holding these assets.

Agricultural land has almost always been seen as a good investment, with some economists in the past labeling the asset as “inflation proof” because of its generally reliable profits and the industry’s steady support from lawmakers.

Land is one of the most stable, tax-friendly investments a person can make and there are many ways that investors can incorporate land into their portfolio. Whether it’s a farm or ranch, a real estate investment trust (REIT) or a crowdfunding platform that specializes in farmland, a land investment can bolster your financial returns.

Cash Buyers Drive Land Market Resilience

Cash buyers have changed the dynamics of the rural land market and have exerted a great influence on overall property demand. Although high mortgage rates are having a chilling effect on the residential real estate market, land prices are rising because so many affluent buyers can buy properties in cash, snapping up high quality land with desirable features. Land prices remain high despite the high cost of borrowing because of too few properties for sale and a wealth gap with some buyers holding bags of cash who can bypass the soaring rates. For wealthier individuals who have plenty of money on hand, it makes more sense to pay in full and avoid interest altogether.

Rising prices are a promising development – as long as they are slow, stable and predictable. They also need to be reflected in other parts of the economy, most particularly wages and income. They too must rise in tandem with real estate. Real estate prices are deeply cyclical, much of which depends on factors you can’t control. So whether you plan on buying a new property or want to use your financial resources for other expenses or paying down debt, it’s important to analyze both broader market conditions and your the specific property to determine how the land’s value may fare over time.

Do you have a suggestion for next month’s Pulse question? Submit your question and we might choose yours!