The pandemic sparked a land rush toward rural areas, and the trend continued in 2021. This rush has created low inventory in all price points and land uses, creating a seller’s market for people looking to cash out. Land of all types, whether recreational, ranch or unimproved land, has become an excellent investment for buyers looking for a place to park their cash, particularly if interest rates climb and inflation continues.
“I think if inflation continues to rise like it’s been rising, we’ll see more and more people wanting to put their money into land,” Janey Knipe, associate broker and sales manager for Knipe Land Company, told WLJ. “Land is usually considered a hedge against inflation, and that is what we were seeing partially in 2021. People were hedging and saying, ‘I need to get money into the land.’”
Northwest Farm Credit Services (FCS) surveyed their appraisal staff and found that demand was strong for rural properties and farmland for the second half of 2021. Appraisers from Idaho, Oregon and Washington responded that the number of agricultural property listings remains low. Still, many appraisers said interest in high-quality land remains strong, with 84 percent reporting slightly higher to higher values.
“Survey participants viewed continuing interest from outside the Northwest as the most significant factor driving higher price forecasts in the coming months, followed by improved commodity prices, lack of high-quality land for sale and improving moisture levels,” Northwest FCS said in a press release.
“Rising interest rates and input costs, supply chain disruptions, and government regulations were rated as the most important factors placing downward pressure on prices.”
Brokers who spoke with WLJ concurred about the reason for increasing prices and concerns about the future, with Knipe saying rising interest rates will create a domino effect for whether someone purchases a property, which indirectly affects a buyer completing a 1031 exchange on another property.
Brokers also said the lack of inventory drove prices up, and properties have been listed for shorter periods.
USDA’s National Agricultural Statistics Service (NASS) reported farm real estate value, a measurement of the value of all land and buildings on farms, in August 2021 for the Pacific region was up 8.6 percent.
Oregon experienced the largest jump in prices at 10.3 percent, for an average of $2,790 an acre, followed closely by California, with a 9 percent jump to $10,900 an acre. Idaho continues to see year-over-year increases in farm real estate value, with a rise of 7.7 percent to $3,350 an acre, an 18.5 percent increase since 2017. Utah and Washington also experienced growth with 6.9 and 5.1 percent gains, respectively.
Brokers told WLJ drought remains a concern with buyers, as most of the West received heavy moisture and snowfall in December, then very little in January and February so far. Farmers and ranchers who are buying are looking for water accessibility.
Buyers in the Far West vary by state, with the majority being either cash buyers or 1031 exchanges. Both Knipe and Ashley Mickelson, broker for Fisher Nicholson Realty LLC, said buyers in Oregon have been “absentee landlords” of investors and people moving out of urban areas and buying hobby farms for raising 4-H animals.
Oregon
Mickelson said buyers of farm and ranch properties want them with irrigation and stock wells, rather than depending on the water district. Mickelson sells property in southern Oregon and northern California, where water issues with the Klamath River basin are a concern.
“There’s been a slowdown of farmers and ranchers investing, and a lot of them are holding off and waiting to see what happens (with water allocation),” Mickelson said. “I have farmers that are pining to buy irrigated ground with well water.”
Mickelson said she had a property that was on the market for two years, which recently received multiple offers from local farmers, ranchers and investors because it had four productive wells that did not run dry last year.
Mickelson pointed out installing a well in the Tule Lake region of northern California is more accessible than in southern Oregon. In the Upper Klamath Lake area and the Sprague River, water availability is “iffy.” However, in the area south of Klamath Falls along Highway 39, farmland is selling rapidly since there are available wells.
Mickelson concurred with NASS’ report showing a 10 percent increase in farm real estate values. She said that irrigated farmland typically sells for $4,500 an acre, and farmland with Class 1 or 2 soils will list for $5,000 an acre.
Mickelson expects the market to grow this year, especially in the Klamath Basin, as prices have not accelerated as much as other areas. The challenge for this year, Mickelson said, will be water issues and the drought, coupled with a lack of inventory.
Idaho
Knipe said there was a mix of investors looking for farm and ranch properties along with recreational opportunities. As expected, Knipe said buyers from the West Coast were looking for smaller properties close to amenities offered in larger cities, but with a chance to own some land.
Knipe noted investors were looking for development ground, and some farmers and ranchers were looking to expand their operations. Knipe said farmers who sold to developers use 1031 exchanges to purchase land in Idaho. Knipe also noted that some land in Oregon was sold to developers, and the sellers bought in Idaho.
Aside from the Treasure Valley area, which includes Boise, Meridian and Nampa, Knipe anticipates prices will stabilize or rise only marginally. However, Knipe noted it depends on the location, whether prices will continue to climb and the property type. Knipe said the unique properties with water features that would typically be difficult to sell are selling to people working remotely.
California
The California chapter of the American Society of Farm Managers and Rural Appraisers’ (ASFMRA) “2021 Trends in Agricultural Land and Lease Values” report showed that demand for rangeland depends on the region of the state.
ASFMRA noted that smaller, rural residential and recreational type properties experienced strong demand and increasing prices, partially spurred by the COVID-19 pandemic. Buyers either relocated to rural communities or purchased a secondary recreational residence.
Todd Renfrew, owner and broker of California Outdoor Properties and Outdoor Properties of Nevada, told WLJ there are still many buyers from the San Francisco Bay Area looking for land. Buyers are also looking to put their money into something other than the stock market.
The majority of rangeland purchases in the state’s mountainous region were for owner occupancy, homesite construction with grazing uses, expansion of existing owner-operated cattle operations, and marketing to buyers looking for recreational/retirement properties with cattle grazing as a secondary use.
Prices in the region for irrigated pasture range from $2,500-3,500 an acre, with increasing demand and market value. Dry pastures in the area list from $500-1,000 an acre.
ASFMRA divides cattle ranches in Lassen, Modoc and Siskiyou counties into “inside operations” (0-15 percent public land), with values at $6,500-9,000 an acre, and “range operations” (greater than 15 percent public land), listed for $4,000-6,000 an acre.
Renfrew noted recreational properties have also been selling well in the state as “it is an emotional purchase rather than a financial one.”
Nevada
ASFMRA reported the Nevada agricultural real estate market has indicated stable to increasing values, depending on the local market. There have been several cattle ranch sales, indicating a stable to increasing demand. Sales of pump groundwater farms have been strengthening, with several listings showing increasing values.
Sales in the Fallon area are increasing with smaller parcels, and in Mason Valley and Smith Valley, the Walker Basin Restoration Program continues to have some impact on values.
Northern Nevada cattle ranch values per animal unit month are from $2,400-3,600 for desert operations to $5,000-7,000 for inside operations on increasing demand and prices. USDA pegs the value of farm real estate at $1,010, a modest 1 percent increase.
Renfrew said a lack of inventory drove prices higher, and buyers from California were looking at Nevada due to the favorable tax situation. Renfrew said 2021 was his best year, as he sold a large tract in California and a 50,000 acre ranch in the Weld/Elko area.
Brokers who spoke with WLJ anticipate a lack of inventory this year. Knipe said sellers are hesitant because “they cannot buy what they needed if they sold what they had.” — Charles Wallace, WLJ editor
