Real estate prices soar for farmland

Home values are down 32 percent but farmland is soaring in the struggling real estate market, according to a recent report from CBS News.

While the housing market continues to struggle, investors are keeping an eye out on the recent farmland boom. MSNBC reported last week that farmland prices in Iowa have skyrocketed more than 30 percent in the last year alone. Land in Iowa recently sold for $20,000 an acre, setting a state record.

The high demand for farmland may be driven from rising grain costs. The price of crops have tripled in the past five years as there is a rising demand to make ethanol from corn. Rising prices for wheat, soybeans and other crops have also driven the increase. As the crops bring higher prices, the land in which they are grown on becomes more valuable.

The rise in farmland prices have some experts warning that Iowa and its neighbors could be instigating the country’s next real estate boom. The New York Times reported that Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City, told the Senate Agriculture Committee last February that farmers could suffer from a drop in real estate prices if grain prices were to fall and interest rates rise.

Demand for farmland boomed in the 1970’s and early 1980’s as U.S. grain exports increased. Rising grain prices pressed farmers to borrow money to buy more land and when interest rates rose, farmers couldn’t cover the debt. The average price for Iowa farmland fell 63 percent from the peak in 1981 to the trough in 1986, according to Iowa State data.

Since many land buyers are paying heavy cash down payments for their purchases, the risk may not be as high as some fear. MSNBC reported that buyers are often required by banks to pay for close to half of the land that they buy upfront. While many real estate housing markets continue to struggle around the country, hunger among farmers has prompted more sellers to put their land up for public bidding to see what they can get in a sale.