Market report: The Real Estate Market Appears to be Strong for Most Market Segments
Overall, 2015 was an excellent year for the real estate markets as the improving US economy and Federal monetary policy made production driven assets a favored investment class. Generally, inventory has been limited for good to excellent quality farm and ranch lands. The demand from buyers has subsided with lower cattle and grain prices impacting optimism. Recreation lands and lifestyle properties continue to show improvement in activity and sales, however, the buyers have a large inventory to consider and they have become discerning in terms of value. Taking a closer look at specific markets, we observed the following trends.
Working ranch prices through the summer of 2015 were very strong due to lack of inventory and strong demand resulting from the strong cattle market. The precipitous break in the cattle prices last fall is not expected to improve any time soon and the demand for ranches has trailed with lighter interest so far in 2016. The inventory of working ranches continues to be tight, but we see the inventory beginning to loosen up.
The inventory of smaller pasture lands coming to market appears to be increasing. Aside from interest in very large ranches, there appears to be a lull in demand as buyers try to foresee the direction of values. The outlook for the remainder of 2016 will be dependent on weather and drought conditions; with lower cattle and calf prices expected, it seems the bloom will be off for higher prices.
Recreation and lifestyle properties including horse properties have been slow since last summer as buyers pause to assess values. There remains a good selection of inventory and sellers have held strong on prices. We expect that some seller motivation will be required to put a deal together. It should be noted that some of the geographic areas for these “niche” markets are seeing varying results. The recreation and lifestyle markets have improved, however, concern over the economy as well as election year jitters are affecting buyer’s actions. There seems to be adequate inventory in most market segments.
Farmland values have declined over the last 12 months as commodity prices (grain in particular), have remained soft. Areas with specialty or perishable crops such as vegetables, nuts and tree fruit are seeing stable prices and continued demand. The interest from large investors and larger family farm operators for additional farmland has softened and there appears to be increasing inventory indicating that prices will continue to soften thru the fall as we see those that have to sell being more aggressive with marketing. Prices will be driven by the outlook for commodity prices which are trading in the lower end of the long term trading range.
We expect 2016 to be an active year with more inventories. Demand from buyers will be driven by income consideration and value. The lack of other investment opportunities will keep Buyer demand strong, but discerning. Sellers have few reinvestment opportunities and it seems some sellers will only sell if they find a replacement property, making many transactions subject to 1031 exchange requirements.
Written by John Stratman, Broker Associate & Principal Owner