Rising interest rates may affect land prices

On Behalf of | May 5, 2022 | Uncategorized |

After several years of keeping interest rates near zero, the Federal Reserve approved to increase interest rates by .25 percentage points in March 2022. Experts agree that the agency will likely approve additional rate increases throughout the year. Ostensibly, this will have a major effect on the real estate market overall in Ohio, including farmland and other land tracts.

The land market and rising interest rates

According to the founder of one of the top-selling farmland and undeveloped land agencies in the state, a rise in interest rates will definitely affect the residential real estate market, but what about land? The source stated he believes the Federal Reserve will likely increase interest rates four more times during 2022, and that may create a strong impetus for people to buy more land before the rates increase even more. However, there are other factors at play in the farmland market.

Over the past few years, farmland prices have seen a precipitous increase in value. Land that was going for $3,000 per acre 25 years ago can now go for as much as $13,000 an acre or higher. This may cause some to wait out the market until the prices reach their zenith before selling. Other factors driving the market include an increase in 1031 tax-deferred exchanges along with an increase in good crop prices.

Supply and demand

In short, it really all boils down to supply and demand. Farmers know they can’t grow crops without dirt, and they are willing to pay to get the land they need, even with interest rate hikes. As with the residential real estate market, the farmland market appears to favor the buyer at this point. As any real estate transaction can be complex, anyone who wishes to purchase farmland or any other real estate in Ohio will want to work closely with an experienced real estate attorney from the start.