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The Good News
By John | June 2, 2008
You have heard the stories about plummeting home values and credit drying up for real estate acquisitions. Development land is offered for sale everywhere, with no takers. REIT values have been falling. Commercial developers experience difficulty financing developments, as lenders back away from previous commitments. Isn’t there any good news in the real estate world?
Yes, there is. Not all real estate is alike. Get away from the metropolitan areas and everything is just fine. Farmland values have been rising steadily, and credit from rural banks and financial institutions serving rural areas is readily available. Only those financial institutions that got caught up in the feeding frenzy and got burned by their mortgage-backed securities now must pull in their horns.
How about rural recreation land? No, it hasn’t gotten caught up in the farmland craze. Neither has it suffered directly from the bursting housing bubble, but it is being affected by dropping consumer confidence. There appears to be an increasing supply of vacant recreation land on the market, and demand has softened. Because of that, I believe we are facing a buying opportunity.
Why? There are vast amounts of money sloshing around the economy. It came out of the stock market at the turn of the century. It came out of the housing market in the past couple of years. It has been going into the commodities market recently. Where is it headed next? There are very good reasons why it will go into rural vacant land.
Land is in limited supply. There is no substitute for land, unlike most commodities. The population is growing in the U.S. and worldwide. The population is spreading out, as technology makes it unnecessary to congregate in huge cities. Productivity growth, advances in technology, and falling trade barriers are enabling the creation of vast amounts of wealth throughout the planet. That wealth needs a home.
A few decades ago, world currencies abandoned their ties to precious metals and became fiat currencies. It is the stated policy of central banks to inflate their currencies. Where can one safely invest where purchasing power will not be steadily eroded away?
The U.S. has the most stable government on earth. Private property rights are stronger here than in most countries. The U.S. is the capitalist center of the Universe.
Rural vacant land started rising in price several years ago. In many areas it has become de-coupled from its underlying ability to produce revenue. Now we are experiencing a lull in rural land pricing. This is a buying opportunity. But the window won’t be open long. land values are headed up.
Topics: Rural Land Investment |