Election 2018 – What is the Impact on the Land Market? Week 4

Impact on the Land Market:

Increasing interest rates in turn increase the threshold rate of return used to evaluate investments. Moving from 0% to 4% literally ceases the experience that EVERY investment looks good and shifts investors to becoming selective. The prices of those assets not selected will then decrease until their rate of return matches the market’s Threshold Rate of Return.

The impact will be greater towards the end of 2019 than the beginning of 2019. Last week’s blog about the impact of decisions by The Fed addressed that sequence. The short version is, if you want to sell some land the time to sell is NOW.

The obvious land market segment that will be most negatively impacted is residential development land. The cost of new home construction never decreases but lot values in some segments will decline. Each residential segment will be impacted differently based on demand versus supply in that segment.

Timberland has been steady to a slight decline over the last several years. I would rate timberland values as stable in 2019. Similarly, cropland values.

Commercial and industrial development land will probably decline for the exact same reasons as residential lots, higher interest rates. Location will have a huge impact on land market trends in each of those segments.

Because land is the source of all wealth, a really good piece of land is the very best long-term asset one can hold in their portfolio.