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Are Farmland Prices Becoming a Bubble?
While many homeowners have seen the appraised value of their property drop in recent years, farmers have seen their land values skyrocket to record highs. But some experts are saying there could be an impending crash on the way.
Just a few miles north of Jacksonville, a tract of farmland recently sold at auction for $16,000 per acre.
That's at least double what it would've brought even 10 years ago. This sharp increase in prices has many worried that farmland values are becoming another bubble.
"I really think we got three things that's working in demand driving this market," Allan Worrell of Worrell-Leka Land Service, which handled the sale, said. "We've got good commodity prices, we've got a very low interest rate environment, and the third is just a lack of supply. There just has not been that much pent-up demand on the market, and there's a lot of pent-up demand."
But unlike the housing boom a few years ago, banks aren't loaning a high percentage of the price.
"For high quality farmland, we've kind of internally set a per-acre limit of $6,000 per acre," Mark Staake of Farm Credit Services said. "For mid-quality farm ground, we're at $5,000 per acre, and then when you get into timber soils or a little bit more of the recreational farms, the limit's been set at $3,700 per acre."
Thanks to high commodity prices, borrowed money isn't even used as much.
"Here in the last couple of years, it's almost been around 50 percent of the sales that have actually been paid for with 100 percent cash," Staake said. "And only about 50 percent of the sales were being financed. And that does not mean those were 100 percent financed. There was still some cash coming in on those as well."
And if land values do fall, there likely won't be a big selloff.
"You know, farmers buy it for the long haul," Worrell said. "They want it in the family."
We also asked Worrell how much higher he thought farmland prices could go. He answered that last year he believed we were near the top, and he's since watched them climb another 20-30 percent.
The record-setting sale in Morgan County was the Rexroat Farm. There were several tracts, with the highest two bringing $16,000 and $15,400 per acre.
Visit the website for more results from the sale.