Stability in Values Defines most Degments in the Real Estate Market
Written by John Stratman & Bart Miller, Mason & Morse Ranch Company, Broker Associates & Principal Owners
Trends in the 2017 real estate markets have normalized after the slowdown in transaction through the 2016 election cycle. In the case of buyer motivation, value and return on investment are the bookends as buyers seek quality properties where they can see value in the purchase price and a desirable yield over time. Buyers remain diligent in their decision to purchase despite the amount of money available to the market place. Tax deferred exchanges continue to be a relevant factor for the lower and mid-range points in the market, although cash buyers in the higher price market segment continue to outweigh buyers seeking financing. The high end is predominantly cash buyers, but may seek cash out financing post-closing as a means to use some leverage to their advantage. Areas with proximity to population centers continue to have the most activity with upward valuation trends. Prospective sellers are faced with the constraints of what to do with sale proceeds, whether they are 1031 buyers or otherwise, and the decision to sell or adjust their pricing is driven by the lack of good alternatives. The succession of wealth transfer does not defy time, therefore purchase and sale decisions continue to motivate both buyers and sellers.
Agricultural Farm and Ranch
From the standpoint of agriculture, it is somewhat of a mixed bag regionally. Although most regions saw a decline in farmland value across the U.S. Texas seems to be bucking the trend with a 6.3% gain in value. Farmers and ranchers will most likely face flat commodity prices through harvest at near break even production levels, so change will be driven by either life events or a change in commodity prices.
According to the USDA’s 2017 Land Values Summary Report, “The average acre of cropland is worth $4,090 across the U.S., a level unchanged from 2016 and the third highest on record. The national average for pasture land is $1,350. Pasture values in South Dakota and the Delta region, which includes Arkansas, Louisiana and Mississippi, showed the highest increase of nearly 3% above year-ago levels, while the Corn Belt saw the largest decrease of 1.7% from 2016 values.”
A change in commodity prices and hence a change in land values will be influenced by U.S. and foreign relationships and the value of the US Dollar. Generally, inventory is limited for good to excellent quality farm and ranch lands as sellers continue to have high expectation of selling prices.
Recreation and Lifestyle
Recreational luxury properties continue to improve in value over year ago as the stock market sustained a healthy year to date growth rate between 10-11 percent. Although some analysts report stocks are overvalued and a price correction is in the future, investors continue to stay optimistic for continued U.S. corporate profit growth as we proceed into the final quarter of 2017. The upper end of the recreational and luxury market is very active as large properties are being readily shown and contracted when a buyer’s wants and needs are met. The mid-range of the market from $3 million to $10 million continues to be the most difficult price points to attract buyers. There is good activity on the lower end of the price spectrum below a $3 million where the buyer pool is larger and interest rates remain relatively low historically.
We expect the remainder of 2017 and early 2018 to be very active in all sectors. Stable credit markets will drive buyer demand as buyers seek value opportunities. Limited inventory of larger properties will continue to drive prices upward in the market. Pricing on mid-range inventory will be determined by accurate valuations by brokers and sellers to attract buyers.
Working ranch prices have stabilized and are seeing regional increases in value due to the demand for grass pasture and hay as a result from the improving cattle market after the downslide of the last several years. The increase in cattle numbers as well as the effects of weather such as the drought in the upper Great Plains has fueled the demand for both feed and land. The inventory of working ranches is tight; however, the generational shift continues to bring new product to the market as family ownership changes. The uncertainty of comparatively low capital gain taxes and the possibility of increasing interest rates should be weighed by sellers as they decide on their real estate marketing plans.
Farmland values are a mixed bag. Regionally most areas have experienced a decline in value from 2016. The better farms however have held value within 10 to 20% of their highs, while marginal producing farms have been difficult to market. Areas with specialty or perishable crops such as vegetables, nuts and tree fruit are seeing continued upward prices, especially in light of demand form the myriad of investment funds seeking agricultural assets. There is, however, still strong interest from large and small investors as well as family farm operators for market priced farmland and the favorable interest rate environment will keep that demand intact for now.
Recreation and lifestyle properties include several sub-categories including: hunting and fishing properties, horse properties and rural lifestyle and estate properties. Hunting and fishing properties have been slow to sell as buyers remain cautious about future economic conditions. The upper end of quality hunting & fishing properties continue to show the most activity based upon limited inventory and readily available funds. We continue to note that “niche” markets for recreation and lifestyle properties will see varying results, due to geographic considerations, lifestyle choices such as outdoor recreation, equestrian events, quality of hunting, live water, proximity to population centers and the economy. These factors generally will influence the trend of recreation and lifestyle properties going forward. The market has noted several large recreational ranch sales where the selling price was significantly off the listing price indicating buyers continue to be vigilant in seeking value.
Overall, we are optimistic about the markets we serve as available inventory and value based pricing continue to dominate the market place. Mason & Morse Ranch Company is prepared and available to assist you with your real estate buying and selling needs across the U.S., proximity to amenities