Someone sent me a survey this week with the question, “What do you think is driving land prices?” They did not specify “up” or “down”, so here is how I answered:
Driving them up? Or driving them down? It depends where you are in the country.
In Alabama were I have been a rural land broker and manager for 36 years, prices for Alabama rural land are down – as much as 30% by one estimate I heard recently.
Factors driving this decline include declining timber prices (no one wants to build houses these days, so pine saw timber sells today for almost half the value four years ago) and difficulty borrowing money to buy unimproved land.
But perhaps the biggest reason is that both land buyers and land sellers are sitting on the side lines full of uncertainty. They feel uncertain about:
- financial ability – for example, over the past four years, many people have sustained a substantial loss of equity in homes, real estate investments and retirement accounts.
- taxes – for example, will capital gains taxes go up by 50% in January 2013, or stay the same?
- land markets – every prospective land buyer wonders, “what if we are not at the bottom yet?”.
- what to do with the money if they sell – a disturbingly volatile stock market and a 2% yield on 10-year treasuries makes you wonder if it isn’t just better to leave it in the land.
When it comes to our clients, it’s a mixed bag. Many buyers and sellers still sit on the sidelines and watch. But, increasingly landowners are starting to come to terms with the new price reality and are accepting lower prices. And, some land buyers have decided that land, especially investment-grade timberland in Alabama, is a good place to be in uncertain times and that now is a good time to act.
Sometimes when there is sudden change leading to new opportunity, there can be a fine line between the “leading edge” and the “bleeding edge”. But there is little question in our minds that investors are on the cusp of a great investment opportunity in Alabama.
Contact Cyprus Partners today and see how timberland properties can be an investment for your family.