According to the January LANDTHINK Pulse results, 47% of respondents believe the land market is headed for a slight correction. Back in June of 2022, Fed chair Jerome Powell announced plans to “reset” the housing market, increasing the likelihood of falling home prices. As the Fed has increased interest rates to tame inflation, the housing market and land market have begun to slow down. Powell said home prices rose at an “unsustainably fast level” during the pandemic, and he and many other experts say the market needs this correction to reach a more healthy equilibrium between sellers and buyers — as well as healthier affordability. There’s been a growing concern about a land market correction after over two years of record price appreciation. According to last month’s Pulse results, many believe that correction is finally here.
Last month, the January Pulse asked: How much will the land market correct in 2023?
As a landowner or would-be landowner, news of real market conditions can feel stressful – especially when you haven’t endured those conditions in the past. While a price correction describes a drop in prices, it’s not necessarily bad for landowners or would-be buyers. Experts say a correction period would eventually result in lower prices and more land for sale.
What Is a Land Market Correction?
A real estate market correction is a name for a period where prices start falling in some parts of the market to better meet supply and demand. This usually happens when there has been a rapid rise in values over the past few years. Simply put, a market correction is a period of declining land prices. The drop is typically less than 10%, although there is no established number that represents a correction.
During a correction, land prices return to more normalized levels of buying and selling. They don’t fall suddenly and dramatically as they would in a crash. In other words, things balance out. In today’s market, that translates into slower price growth and possibly longer time on the market.
You’ve likely heard the “stock market correction” phrase on numerous occasions. While the term is used to describe both real estate and the stock market, they aren’t the same. Stocks experience dramatic swings fairly often, but declines in homes and land is not that dramatic. Stocks are highly liquid, and can be bought and sold in seconds. Land on the other hand, is an illiquid investment and can’t be bought/sold quickly. That’s a good thing, because it means landowners don’t panic sell their properties on every piece of bad news.
How Long Does a Land Market Correction Usually Last?
Similar to the fact that no established percentage number represents a correction, there’s also no defined timeline. A price correction can be as short as a couple of months or be drawn out over a period of several years. Other economic conditions can extend the duration of a correction.
Are We in a Market Correction Right Now?
It’s difficult to make a declarative statement about current conditions until they have been evident for some time. All signs indicate that the real estate housing market is in the early stages of a large correction. Higher mortgage rates combined with still-high home prices are making it challenging for homebuyers. There has been a significant decrease in home prices since the peak of the market and a significant decrease in home sales.
The land market is another story. Land buyers and sellers shouldn’t worry about a dramatic land market correction. Buying a home and buying rural land are very different. There are a lot of people out there that don’t need to borrow money to buy land. In the last three years, the land market has seen a large number of cash buyers. Another contributing factor that could make a land market correction less likely is the land market continues to experience record-low inventories, keeping prices stable.
It is difficult to predict the exact state of the land market in 2023, but there are a few strategies that may be effective for handling a correction, if we are on the cusp of experiencing one. These include:
- Diversify your portfolio by investing in a variety of properties and markets.
- Keep an eye on market trends and economic indicators, stay informed, and adjust your investments accordingly.
- Be patient: Land is an illiquid, long-term investment, and corrections are temporary.
- Seek advice from land agents, financial advisors, and economists, to stay abreast of current and future market trends.
Our informal online survey revealed that 47% of the LANDTHINK audience believe that the land market will experience a Slight Correction in 2023. Only 29% said that it would be a Significant Correction and 23% said there would be No Correction in the land market.
Do you have a suggestion for next month’s Pulse question? Submit your question and we might choose yours!
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