Farmland prices favor sellers, but for how long?

September/October 2008

By Kate Campbell
Assistant Editor

Farm and ranch real estate prices vary by location, but agricultural property experts say the current market definitely favors sellers—no matter where the property is located. They warn, however, that there are clouds on the horizon that could dampen rural real estate prices.

Tighter lending criteria and uncertainties about water supply are among the factors overshadowing the current "sellers' market" for agricultural properties, including small rural parcels that include a homesite. Uncertainties have slowed sales without too much price softening.

"Water is a huge issue for farm and ranch properties," said Dan Kevorkian, farm division manager for Pearson Realty in Fresno. "Without it you can't farm, but at this point in time there are still more buyers than sellers for farm and ranch property.

"Commodity prices are up and, for the most part, agriculture has been profitable," said Kevorkian, who specializes in agricultural properties in the central and southern San Joaquin Valley. "We're finding fewer distressed-sale situations, but with the worsening water shortage in some areas, values eventually could be impacted."

The 2007 "Trends Report" from the American Society of Farm Managers and Rural Appraisers notes that sales of small acreage in Fresno County declined somewhat with prices softening from a high of $10,000 to $25,000 an acre in 2006 down to a range of $10,000 to $22,000 last year.

"Over the past year and a half, the single-family residential market has declined significantly," the report noted. "Difficulties within the residential market have had a negative spillover affect on the demand and value of small acreage (40 acres or less) parcels."

"In general, we will be looking at a tighter credit market with higher interests rates for all real estate purchases, including farm and ranch properties," said Kirk Lesh, University of California, Santa Barbara, real estate economist. "There has been a further slowdown of 1031 (tax-deferred) exchanges in 2008 and we're still seeing price and sales declines across California."

Napa Valley may be one of the areas where prices continue to climb and agricultural property with homesites is still changing hands, although at a modest rate. Local real estate experts say a scarcity of these properties helps keep prices high.

"During the next 18 months, we can expect turmoil in the financial markets," Lesh said. "That creates fear. For residential property, potential buyers see the market as too risky. The bottom line is that the housing market will continue to deteriorate."

The need for a stable water supply isn't just affecting agricultural real estate values, he said. "A lack of water certainly has slowed residential development and the conversion of agricultural land to urban uses. There are a lot of issues in the California real estate market that need to be worked out before prices improve.

"In the meantime, decisions to buy or sell a farm or ranch property are very situational," Lesh said. "It depends on the property location, availability of water and commodity prices. Frankly, with the unsettled outlook, right now would be a poor time for farmers to sell."

Kate Campbell is a reporter for the California Farm Bureau Federation. She can be reached at 800-698-FARM or kcampbell@cfbf.com.