The characteristics of value are demand, scarcity, transferability, utility. Land and home prices are affected by more; they are influenced by interest rates, fear, inflation and greed.
Real estate price movement used to be pretty predictable—always upward. There was a time in the 1970s when we didn’t worry about paying top price for any property because within a few months the market value was up by ten percent. It was hard to go wrong. No longer. Since about 1990, prices in many rural areas have been rising while many urban and suburban areas have experienced fallen or stagnated prices.
The breathtaking urban and suburban price jumps of the 1970s and 1980s were initiated by the demand of 76 million baby boomers born between the mid-1940s and the mid-1960s. Schools overflowed and the biggest school building boom of all time commenced. More high schools were built in America in 1967 than in any year before or since.
After finishing school the boomers got married and started rearing families. They wanted homes of their own just like Mom and Dad. Rural landscapes disappeared as pastures became sprawling subdivisions. During the 1970s the baby boomers created a huge demand so subdividers provided the supply. Soon speculators—which many of us became—bought anything they could get for a low down payment and rented it out, putting up with plugged-toilet-in-the-middle-of-the-night calls because they knew they were going to become wealthy if they hung on long enough. In the early 1980s we suffered a recession. Then in the middle and late 1980s the market went crazy as the last of the boomers and the speculators made a final run.
The fast-rising prices of the 1970s created a new home-ownership paradigm. A home was no longer a treasured place that would stay in the family for generations. A home was now an investment. Traditional home ownership values were replaced by portfolio enhancement considerations.
The population bulge that is the baby boom market force has moved to the right side of the graphs. As the millennial clock ticks over, boomers are mid-30s to mid-50s and most have already bought homes. Today’s women are waiting longer to have children and are having fewer of them. The demand for first homes, the foundation that holds up the house of real estate, has crumbled.
That’s why part of the house has fallen down. That’s part of the reason for record foreclosures and the S&L wipeout—that and greed and changing market conditions influenced by world forces. The world changed quickly in the late 1980s. All within a few years, the Berlin Wall thundered down, the world decided to take a well-deserved depression break, and the Cold War melted and evaporated. All but the fiercest hawks conceded that Star Wars was history. All but the blind noticed the national debt, the S&L depositor rape, a prolonged national recession and the absence of an identifiable evil enemy. Desert Storm proved that the U.S. is more than adequately armed to deal with second-rate military forces. And so the feds closed military bases and canceled contracts for planes, missiles, military R&D. California, the seventh most productive political unit in the world, paid the price. The financial earthquake continues to rumble. Inflated home equities—paper fortunes—are disappearing like designer ice cubes in cappuccino.
Prices are not reacting equally throughout the land. Not all areas were dependent on defense. Certain hot spots like Washington, D.C. and Houston caught fire. Houston laid claim to becoming the capital of the world or something.
So where are we? Is nothing about the real estate market dependable anymore? Are all the old rules out the window? No. Everything still acts and reacts as it did before. It’s all predictable. Not an easy task, but possible. It’s still a matter of supply and demand, interest rates, inflation, greed. But today’s market factors change much more quickly than ever before because of big business/government activities and so the predicting business has become more of a guessing game.
Rural property prices today
The average value of U.S. farmland in 1995 was $832 per acre, an all-time high. Prices of marginally productive farmland in areas such as parts of the Great Plains are falling as irrigation costs rise, land is abandoned and agribusiness forces more family farmers out of business. The trend today is to huge agri-factories, whether for grain or animal production, on land close to inputs and markets. This trend has created difficult conditions for family farmers but may be beneficial to urban refugees looking for old farmsteads at favorable prices.
Rural homes with acreage and unimproved land suitable for homesteads may be more or less expensive per acre than land appropriate for full-scale farming, depending on location, seller motivation, demand and other local conditions. Following is a sampling of rural listings from Better Homes and Gardens Real Estate® Service and Rural Property Bulletin, available in 1996:
Here are some median housing prices that appeared in “A Small-Town Sampler,” Time, 12-8-97:
Californians are currently in love with the Rocky Mountain states. Prices of highly scenic land in Idaho, Wyoming, Montana and Colorado are being driven up fast by the demand. Newcomers often bring with them the paradigm of buying homes with property for investment. Some longtime ranching families are selling out for premium prices, then buying much larger acreages in less scenic places. Dr. Tom Carlson, a veterinarian and rancher, sold his 600-acre horse ranch in Shell at the base of red cliffs in Wyoming's Big Horn Mountains. He then acquired 16,800 acres in the high plains near Medicine Bow and had money left over (The New York Times, 5-7-95).
Guessing the speed of real estate price movement is a high-stakes game intensely played by investors, bankers, developers. For instance, huge acreages are being purchased in parts of the West on speculation that land prices there will escalate. Heavy hitters might figure that Tarzan Ted Turner bought his 140,000 Montana acres with more in mind than just privacy for playing with Jane. My bet is there will be a ten-to-twenty year period of undulating adjustment while inflated urban prices meet the effect of rural migration, immigration and the reality of global economic forces. Until NAFTA, GATT, the EC and other alliances have shown their influence on American jobs, predicting urban prices is a crapshoot.
What’s the future for rural real estate prices? Part of the answer can be found by studying the census reports of the last 30 years. The 1980 census showed that the 40-year movement from country to city had reversed. Now in the last part of the 20th century, Americans increasingly find cities unhealthy, unsafe, too expensive. In “Rural Rebound Revisited” demographers Kenneth M. Johnson and Calvin L. Beale note that rural residents are typically staying put while metropolitan residents continue the migration to rural places (American Demographics, 7-95). It is reasonable to predict that the migration to rural America will continue. I believe that it will accelerate.
The pattern of population migration from city to country has become clear. The movement is incremental. Central city dwellers move out to the suburbs while suburbanites move out to small towns or to real country. Like the circular wave created by a disturbance in calm water, the movement is outward, ever outward.
University of Washington real estate professor Jack Lessinger studies this movement. He predicts: “Prices will rise in penturbia. They must, to reflect growing populations. . . . In newly developing counties, land values will rise, in metropolitan counties they will fall. Gradually, the two will become more equal in value.”
Anticipating the demand for rural property, many people are now buying second homes as a hedge against higher prices and as a way of more easily making the city-to-country transition. Baby boomers are turning their backs on faded corporate dreams and are converting big-city equities into small-town cottages and rural businesses. Legions of ex-Californians are already growing gardens in Washington, Oregon, Arizona, Colorado, Nevada, Utah, Idaho and Texas. East Coasters are filling Maine, Vermont, the Carolinas, Georgia and Florida. Midwesterners are migrating to Wisconsin, Michigan, Missouri, Tennessee, Kentucky, Arkansas. So—are country prices going up? Do politicians break promises? Does a goose go barefoot? For urbanites who have never seen a goose and are therefore unsure about goose footwear, please see picture following.
For most of us, price is an important criterion, but not the most important. My advice is to identify the area that meets your requirements, check it out with both paper research and personal visits, and then buy as much land as you can afford.
If what you want is more than you can presently afford, a good compromise is to buy your country property now but then stay in the city at a high-paying job until the property is paid for. Every city refugee I have ever talked to agrees that having one’s property paid for before moving to the country is a wise choice—often the one factor that determines the difference between a successful rural rooting or a retreat back to suburbia. Having 40 acres and independence in a few years is better than instant gratification but the pain of making property payments from lower country wages.
Another answer to affordability is to buy farther “out.” Prices decline as miles to the nearest city increase. Really inexpensive property can be had where the utility lines have not yet appeared. Utility line extensions are expensive but photovoltaic technology makes generating one’s own power a reasonable alternative. Cellular telephone service may soon make telephone lines unnecessary.
A common dilemma is choosing between less property now or more property later. The dilemma of buying more acres but then spending more time in the city to pay for them is a conundrum. Talk it over with your family. There is no right or wrong answer. Take your time. You will note that price is down at the bottom of the criteria worksheet. That’s because all the preceding factors are best decided without a dollar consideration. To buy your ideal property may mean having to wait before moving to it. I’ve lived through that scenario and I think the goal is worth the price.
On your criteria worksheet, write what you now believe should be the maximum price you will pay for your property. Divide this price by the minimum number of acres you desire and you will have the per-acre price that you can pay.
Update to online edition, 3/8/10
The United States is experiencing the worst real estate upheaval of my lifetime, worse even than the Great Depression. This is a time of immense opportunity, even though rural prices are presently more stable than urban prices, which have fallen rapidly. But unemployment is high and many people will be selling what they can just to get by. This will include second homes, places where they vacationed or where they once hoped to live. They will be forced to sell these places to sustain their city lifestyles as long as they choose. This can be your opportunity.
Buy for cash if at all possible. If you use a loan to buy, be doubly sure that the income to make the loan payments is solid. The economic ride may well become even bumpier than it is today.
Farmland price information is available from:
Environmental Indicators and Resource Accounting Branch
Natural Resources and Environment Division
Economic Research Service, USDA
1301 New York Ave., NW, Room 532
Washington, DC, 20005-4788