Increased Land Supply
Looking at the 3rd quarter snapshot, in the first three quarters of 2017, a very low amount of land was brought to auction. Then Q4 2017, auction activity picked up drastically with 201 auctions, 139 of those being highly tillable (85% tillable or more). Then, Q1 had even more auction activity with 244 auctions with 165 being highly tillable.
Look what happened to prices when more supply hit the market: from Q4 2017 to Q1 2018 land prices slipped -3.67% on all land and -4.63% on highly tillable land. Then, Q2 2018 had more of a “normal” amount of land being auctioned, but still had some carry-over from all the land being auctioned the previous two quarters. Prices slipped -9.10% on all land and -1.78% on highly tillable land from Q1 to Q2, and then the market stabilized in Q3. The data suggests as more supply comes to the market and demand is the same, prices will be softer; more aggressively on land with less than 85% tillable and not as much with land 85% tillable and higher.
Land Prices Soften
The 12 month market review indicates a fairly stable market, with the month-over-month trend line of -0.91% annually on all land auctions, indicating some softening.
The 12 month market review on month-over-month highly tillable land indicates -1.00% softening.
Medium Quality Land Values Decline
According to the CSR2 value over the past 12 months, the decline is coming from medium quality land. Again, the softening is due to more supply of land coming to auction.
Land Supply and Demand
Looking at the year-over-year comparison, there were almost 100 more land auctions from April to September in 2018 as compared to the same time period in 2017. Looking at the tables, 2018 land prices on both all land and highly tillable land was softer than in 2017.
Iowa Land Market Softens
It is my opinion, the land market softened a bit due to more supply coming to the market. However, the market absorbed the excess supply quite well. I am hearing from realtors that they expect a very busy selling season. Selling season typically runs from right after harvest until about March. Most of the land sales are coming from individuals and ownership groups who are deciding now is the time to sell, as sellers are thinking there is more downside risk in land prices than upside potential. We have not seen much in forced liquidation land sales, but have seen some land coming to the market that were landowners wanting to help their balance sheets. As long as land prices hold steady, I do not think we will see much forced liquidation as 80% of collateral is land and the land prices are holding fairly steady.
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Written by Jim Rothermich, MAI "the Land Talker"
With nearly three decades of experience in the farmland real estate industry and his MAI designation, Jim is a respected expert in the appraisal industry. Check out his blog: "Land Talk Weekly" or follow him on Twitter: @theLandTalker to keep current on Iowa farmland information.