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High interest rates, water concerns and lower commodity prices are three drivers that may influence land values in 2024. Land values are reportedly stable to slightly increasing, with demand frequently outpacing the available inventory. Market participants for land include a combination of local operators, absentee operators and institutional investors. Developers remain a player in the market, but acquisitions for development have decreased due to ongoing elevated interest rates. Some areas are reporting slightly longer listing times for properties.
Land value trends
Overall, land values remain relatively stable to slightly increasing across Washington, Oregon, Montana and Idaho (see charts below). The slight decrease in Montana is more indicative of fewer high-quality or high-amenity properties being sold rather than a decline in property values. Land value trends are mixed in California. Central Coast premium vineyards and high-quality vegetable/strawberry land values appear to be increasing and offsetting declines in the Central Valley, where falling commodity prices have led to a decline in values for walnut and table grape acres. In Arizona, sales activity has slowed (no new sales noted since Q4, 2023) and marketing times are extended due to high interest rates, softening commodity prices and decreasing irrigation water supply in some regions.
Average land values, thousands of dollars per acre
Land Values Box Plot, thousands of dollars per acre
Land value considerations
Interest rates – During Q1 2024, high interest rates were one of the most frequently reported deterrents to land acquisition. Greater instances of creative financing such as owner-carried notes have been reported. See our Quarterly Economic Update for a more in-depth analysis of interest rates.
Residential – The housing market in most areas continues to cool, largely due to high interest rates. A cooling market may lead to fewer developments and alleviate upward price pressure on agricultural lands, particularly those surrounding population centers. Lower prices have yet to be seen as agricultural lands remain in high demand.
Availability – Inventories of agricultural land are low in much of AgWest’s territory, which continues to bolster values despite elevated interest rates. The exception is California, where reports indicate that supply is outpacing demand.
Farm income/commodity prices – USDA forecasts average 2024 net farm income on a national level will fall 25% year over year to $116 billion. While this may disincentivize prospective buyers, the relationship between land values and commodity prices in recent years has been weak as many perceive land as a stable, long-term investment. The outlook for commodities is mixed. Little if any negative impacts on agricultural land values have been seen by verified sales, except in certain isolated regions. Visit our Industry Insights Webpage for more information and market updates.
Water Supply – CA and AZ – California Central Valley growers banked millions of acre-feet of water in 2023, replenishing over-drafted aquifers (when groundwater use exceeds recharge). The Sustainable Groundwater Management Act may lead to strict pumping restrictions and hefty fees in certain regions. Falling water levels at Lake Mead and limited flow on the Colorado River led to severe shortage declarations in 2023. All Colorado River user states and Native American tribes continue with contentious negotiations over water rights and use cutbacks under pressure of looming federal intervention by the U.S. Bureau of Reclamation. Water supply uncertainty and rising interest rates are reducing activity in the speculative/investment market for agricultural land, although the full effect cannot be determined yet.
Drought – Snowpack and precipitation levels in the West are mixed. Most states show fewer areas under abnormally dry, moderate, severe and extreme drought conditions compared with a year ago (see map below). While strong winter storms alleviated drought concerns throughout much of AgWest’s territory, year-to-date precipitation is well below average across Washington, northern Idaho, Montana and parts of Arizona. As of March 14, 2024, California’s snowpack reached 100% of its April 1 average, although there is some concern about premature melting due to a shorter winter and rising average temperatures. Extended drought conditions have the potential to negatively impact land values as farm profitability is challenged.
Drought Map, Western States
Year to Date Snow Water Equivalent, Western States
Arizona
California
Idaho
Montana
Oregon
Washington
AgWest appraisers provide appraisal services on rural properties throughout the West. The Appraisal Services team continually researches sales and tracks market data throughout Arizona, California, Idaho, Montana, Oregon and Washington. They compile the market data and analyze it using a central database.
This report provides a high level look at trends and market characteristics and does not provide details for specific areas or land types. The report should not be used to identify a value for a specific property. This information is limited only to an analysis of trends in identified land values within the geographic area served by AgWest Farm Credit.
For more information or to share your thoughts and opinions, contact the Business Management Center at 866.552.9193 or bmc@AgWestFC.com.
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