Many would argue that farmland in today’s market is relatively expensive. I’m sure you’ve read or heard about various sales that have surprised you by the strength in their sale price. On a recent message board, there was much discussion about how how “crazy” it is to see $8000/acre land prices in places.
But $8000/acre farmland pales in comparison to what has occurred in the marketplace in the collar counties around Chicago. A recent article, As the housing boom dies out, land prices drop, by Cindy Wojdyla Cain in the Plainfield Sun, describes the current state of affairs for the land market in and around the village of Plainfield, Illinois, one of the southwest suburbs of Chicagoland – and previously one of the fastest growing areas in the United States. To sum up the article, let me just say that land values can go down – a lot.
The impact of the severe drop in land values in that area is far reaching. Many developers have gone bankrupt – jobs gone. Many banks that financed the planned developments are becoming owners of property they really never wanted – and are struggling to find new buyers. The local municipalities are also hurting financially, as they’d become accustomed to the generous revenue streams that the previous go-go days of development had provided. And I haven’t even mentioned the impact on the local homeowners of that area, who have seen property values suffer in the well-publicized economic downturn. Some would say that those who are suffering deserve it. In an ironic twist, the article also discusses some of those who are benefitting from the mess, including many local farmers who’d previously sold their land for development, but who are now buying back tillable parcels for pennies (or dimes) on the dollar.
Personally, I believe this is an economic cycle that every economy – local, regional, national, global – will go through. This is a “cleansing” of the marketplace, of sorts, that happens from time to time. Is this downturn larger and more painful than most? Without a doubt. And I personally hate to see anyone suffer – economically or otherwise. But this situation can teach us lessons.
- Every market can go down – stocks, bonds, condominiums, and yes, rural farmland. It seems like history always repeats itself, just in slightly different ways. The turmoil around Plainfield reminds many observers of a microcosm of what happened to too many folks in the farm community during the 1970’s and 1980’s. So use others mistakes and recognize what can happen in the rural land market.
- You’ve heard this one – never bite off more than you can chew. Leverage can be a great thing when it’s working for you – but it can provide equally painful results when it works against you. And I’ve never heard of a foreclosure happening to someone who doesn’t borrow money.
- Timing is everything. You’ve heard about the 3 most important things in real estate – location, location, location. But a close runner-up is to location is timing. Some very smart and savvy people have been financially destroyed by bad timing. Keep that in mind in your business.
- Decisions have consequences. I concede it may be somewhat hard to see the validity of this point when we consider the state of our “bailout nation”. But when the politicians eventually get out of the way, the market will again get back to proper functioning – with the reality that all decisions have consequences.
The darkest situations for some often offer the best opportunities for others. And if you’ve been damaged in some way by this economic downturn, always remember that failure is not permanent. Just make sure you don’t miss out on the chance to learn from your mistakes, and the mistakes of others.
