According to the Des Moines Register, Iowa farmland prices set a record this year for the fifth year in a row. The
average price of farmland in Iowa is now $3,908 per acre. This is based upon an annual survey conducted and released by the Iowa State University Extension.
Here’s the big news - $3,908 per acre is a 22% increase over last year’s average, which is the largest one-year increase since 1976. Pretty sweet ROI, huh?
Why would this be, in this era of slow real estate markets? Two reasons, according to the survey respondents:
- Higher corn and soybean prices due to demand for ethanol and for export, and,
- Low interest rates.
Factoid from the article: about 2 out of 3 acres of Iowa cropland are owned by Iowa residents.
So, will this sort of increase in value continue? According to Michael Duffy, the ISU economist who conducts the study, “We’ll see a strong land market in Iowa for at least five years… I don’t think this demand will diminish in the near future. I don’t see anything that can cause a downturn.” On the other side of the coin, Tom Huston, who was superintendent of banking in Iowa during the farm crisis of the early 1980s, says that land prices are reaching a point where they might not be justified by the revenue the land can generate, which was one of the reasons for the problems in the 1980s, when average per acre values fell from $2,147 in 1981 to $787 in 1986. Right now, it seems like ethanol is the key—if demand continues to be strong, land values may be held up by that strength.
Another factoid: only 25% of Iowa farmland carries any debt. Wow!
When values are adjusted for inflation, it’s interesting to note that we are not all that near the high point of yesteryear. In 1979, prior to the farm crisis, Iowa farmland values averaged $5,564 per acre (again, adjusted for inflation).
Final factoid: Sixty percent of farmland purchasers in 2007 were farmers, which is about the same percentage as last year. Also remaining about the same were the percentages of investors buying (35%), and “others/beginning farmers” (5%).
The survey falls in line with two other surveys that were released recently: the Chicago Reserve Bank’s survey showing an October to September increase of 21%, and an Iowa farm real estate brokers’ survey of its membership, which showed an increase of 20.7% over roughly the same period as the Chicago survey.
Anybody want to buy some Iowa farmland? If so, see Jason Smith!
Ken Tharp
Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.
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