US Farmland the Next Housing Bubble?
Regulators are now warning that a new real estate bubble may be forming in the US, this one pertaining to farm land. Prices for land have been skyrocketing in recent months, just as residential property skyrocketed leading up to the housing collapse.
The surge in prices has been particularly evident in the Midwest, with double-digit increases occurring last year in Illinois, Indiana, Kansas, Iowa, Minnesota, and Nebraska. In some areas of Iowa, for instance, prices on good farmland rose a staggering 23 percent last year. Just a few years ago, land prices began to rise in response to growing demand for corn to produce ethanol, surprising farmers. But in recent months, prices have begun to climb for everything from wheat and corn to soybeans and a host of other agricultural products, fueling the property value increase.
Average grain prices have increased so significantly that they are approaching levels seen in the 1970s, the last catastrophic boom-and-bust cycle for agricultural property in the US. This has regulators concerned.
"History has taught us that it is nearly impossible to determine how much of the farmland boom may be an unsustainable bubble driven by financial markets," said the president of the Federal Reserve Bank of Kansas City, Thomas M. Hoenig, in a prepared statement delivered to the Senate Agricultural Committee.
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