It’s not rocket science to deduce that as costs for fuel, food and rent skyrocket, expendable income for purchases such as additional acreage and recreational land as well as the demand for more developments like gas stations, convenience stores, and restaurants decreases. It’s now January of 2023 and, although we have seen a slight drop in inflation since last year, the truth is that it remains significantly above its multiyear average (shrm.org). With the Consumer Price Index for all items around 8% over the last 12 months (Bureau of Labor Statistics), which is well above the typical average inflation rates of around 3%, the Federal Reserve has answered with interest rate hikes meant to slow inflation.
Higher interest rates make it more difficult for buyers to purchase homes and land whether for farms, recreation, or development.
As the cost of all other goods rises, so do the costs of the materials and labor involved in land development and farming. In response, we may see farmers and developers shy away from making any moves until interest and inflation rates can level out.
Garrett Hawkins, a farmer in St. Clair County, Missouri says, “For all of us, as we sit around the kitchen table, I think every farm family is having the discussions about how do you handle the costs that continue to escalate? Families are making tough decisions right now” (agupdate.com).
Similarly, Ryan B. Paul, CPA, wrote that “developers, experiencing the rising cost of goods and higher interest rates, are likely to pause or adjust new projects” (globest.com).
Despite these concerns, experts the say that farmland and commercial real estate values are hitting all-time highs due to higher commodity prices (extension.iastate.edu; globest.com). So, if you already own land, it’s the best investment you’ve made. But purchasing, building on or offloading land at these higher values is another story.
As we all-buyers, sellers, developers, and real estate professionals-wait (maybe not so patiently) for the economy to turn around and for pressure to lessen (or shift), we have to realistically expect that we still have a long way to go. George Ratiu, Realtor.com’s director of economic research, explains that “we can expect financial market volatility to continue until investors have more clarity about the economy’s direction. With the Fed[eral Reserve] committed to monetary tightening until inflation is decidedly moving toward 2%, borrowing costs will remain elevated, keeping housing affordability at the top of the year’s list of challenges” (forbes.com).
Whatever economic storms we have to weather, we can be sure that we with strong communities and the help of the experts, we will get through it together.