2005 IOWA LAND VALUE SURVEY: OVERVIEW

Prepared by Michael D. Duffy, agricultural extension economist, and Darnell Smith, research associate, Iowa State University, December 13, 2005.

1.0 History and Purpose of the Land Value Survey.

1.1 The survey was initiated in 1941 and is sponsored annually by the Iowa Agriculture and Home Economics Experiment Station, Iowa State University. Only the state average and the district averages are based directly on the ISU survey data. The county estimates are derived by using a procedure that combines the ISU survey results with data from the U.S. Census of Agriculture. The survey was conducted by Michael Duffy and Darnell Smith.

1.2 The survey is intended to provide information on general land value trends, geographical land price relationships and factors influencing the Iowa land market. The survey is not intended to provide an estimate for any particular piece of property.

1.3 The survey is based on reports by licensed real estate brokers and selected individuals considered to be knowledgeable of land market conditions. Approximately 1,100 surveys are mailed each year. Normally 500-600 completed surveys are returned.

1.4 Respondents were asked to report on more than one county if they were knowledgeable about the land markets. The 2005 survey is based on 483 usable responses providing estimates on 615 county land values.

1.5 Participants in the survey are asked to estimate the value of high, medium and low grade land in their county. Comparative sales and other factors are taken into account by the respondents in making these value estimates.

2.0 Analysis by State.

2.1     The 2005 state average for all grades of land was estimated to be $2,914 per acre.

2.2     The increase in the state value was $285 per acre from 2004.

2.3     The percentage increase was 10.8 percent from 2004.

3.0 Analysis by Crop Reporting District.

3.1    The highest land values were reported for Central Iowa, $3,415 per acre.

3.2    The lowest land values were estimated for South Central Iowa, $1,793 per acre.

3.3    The greatest percentage increase was in South Central Iowa, 15.9 percent.

3.4    The least percentage increase was in Southeast Iowa, 8.6 percent.

4.0 Analysis by Counties.

4.1     The highest value was estimated for Scott county, $4,707 per acre.

4.2     The lowest value was in Decatur county, $1,321 per acre.

4.3     The greatest dollar increase was $540 in Scott county.

4.4     The greatest percentage increase was 24.3 percent reported in Ringgold county.

5.0 Analysis by Quality of Land.

5.1     Low grade land in the state averaged $1,961 per acre and showed a 14.5 percent increase or $248 per acre.

5.2     Medium grade land averaged $2,736 per acre and showed a 11.4 percent increase or $279 per acre.

5.3     High grade land averaged $3,511 per acre and showed an increase of 10.0 percent or $318 per acre.

6.0 Major Factors Influencing the Real Estate Market.

Survey respondents listed both positive and negative factors influencing the land market. The respondents listed multiple factors in most cases.

6.1     There were 5 positive factors listed by over 10 percent of the respondents.

6.2     Low interest rates (27 percent) and good crop yields (26 percent) were the most frequently mentioned positive factors.

6.3     Other positive factors were: tax free exchanges (20 percent), government programs and payments (16 percent), and strong investment demand (12 percent).

6.4       There were 3 negative factors listed by more than 10 percent of the respondents. Lower grain prices were listed by 28 percent of the respondents. High input, machinery and low profitability in general (16 percent) and up trending interest rates (16 percent).

7.0 Number of Sales Compared to Previous Year.

When asked to compare the number of sales in 2005 relative to 2004, 29 percent reported more, 48 percent the same, and 23 percent reported less

8.0 Land Sales by Buyer Category.

The 2005 survey asked respondents what percent of the land sales were sold to four categories of buyers.

8.1     The majority of farmland sales: 56 percent were to existing farmers. Investors represented 39 percent of the sales. New farmers represented 3 percent of the sales and, other purchases were 2 percent of sales.

8.2     Sales to existing farmers by Crop Reporting Districts ranged from 81 percent in East Central to 46 percent in Southwest.

8.3     Sales to investors were highest in Northwest (51 percent). East Central reported the lowest investor activity (17 percent).

9.0 Interpretation of Survey Results.

The results of this year’s survey show that the interest in Iowa farmland remains high. This year’s average value of $2,914 is the highest ever recorded in Iowa. This is the third year in a row with a record high. When the land values are adjusted for inflation, using 1982 – 1984 time period, land values in Iowa peaked in 1979. The value reported in this year’s survey, when adjusted for inflation, is roughly the same as the value reported in 1973, the first year of the rapid increase in land values in the 1970s.

The survey also showed that the strength in the land market was apparent throughout the state. All 9 crop reporting districts showed increases in the average value of close to 10 percent. All counties showed an increase in value. There were 21 counties with an increase less than 10 percent.

The 2005 survey shows investor interest in purchasing farmland remained high. There are many reasons for this including the low interest rates and the poor performance in the stock market.

The statewide average 10.8 percent increase in land values is similar to other surveys of Iowa land values. It is important to remember the different time periods covered when comparing surveys. The Iowa State University survey reported here is an annual survey as of November 1, 2005.

Iowa farmland has performed very well since 2000. The statewide average land values have increased 56.9 percent over the past 5 years. The South Central Crop Reporting District increased over 80 percent since 2000. The Central district showed the highest dollar increase ($1,220 per acre) since 2000. The South Central district reported a $801 increase. There were 7 counties that increased over 70 percent during the same time period.

Are Iowa land values at their peak? Is the market too high? These are frequently asked questions that cannot be answered from the survey nor with any certainty. It does appear from the survey, however, that these concerns are on people’s minds. When you combine several of the similar negative factors mentioned, well over a fourth of the respondents are concerned that the market is too high for profitable farm production. There is also a considerable degree of uncertainty expressed regarding farm programs, the general economy, fewer buyers, and interest rates.

Another frequently asked question is whether or not high land prices are a good thing. Obviously, the answer to this depends upon your point of view and whether you are an owner or a renter, or potential buyer. A couple of observations address this question. One is that rents have been increasing at a lower rate than land values over the past several years. Another observation is that much of Iowa’s land is owned by absentee landowners. Based on a 2002 survey, 45 percent of Iowa’s farmland was owned by people who did not live on a farm. Of this, 19 percent of Iowa’s farmland was owned by people who don’t even live in Iowa. This same survey showed that almost three-fourths of Iowa’s farmland was owned without debt. This is one indicator that the potential for significant land value declines is not as great today as in the early 1980s.

There are many questions pertaining to the record high land values. How you answer them depends on your point of view. The survey shows that land value increases appear to be slowing and that values may be nearing a plateau in the near future. Many respondents indicated that the supply of land on the market has increased and that the potential buyers may be hesitating to buy at these higher land prices. Time will tell.

 

Table 1. Recent Changes in Iowa Farmland Values

Table 2. Average Value Per Acre of Iowa Farmland Listed by Crop Reporting Districts and Grades of Land