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UNIV OF NEBRASKA ECONOMIST WARNS FARMLAND VALUES MAY HAVE 30% SETBACK
Feb. 8, 2013
Source: Landowner newsletter
Farmland, Nebraska farmland in particular, is in a bubble and is vulnerable to a 30% setback, warns Bruce Johnson, University of Nebraska-Lincoln ag economist.
"One lesson to be learned from economic history is this: that real estate booms create bubbles, which lead to real estate busts," he says.
He says a "perfect economic storm for agriculture - particularly crop-based - rolled onto the horizon," over the past few years. "In just five years, the value of this state's agricultural annual production rose nearly 80%, while annual net farm income more than doubled. At the same time, U.S. monetary policy of dollar stimulus and record low interest rates converged to make ag land ownership the new 'sweetheart' of investment," he states.
As a result, the value of Nebraska farmland rose 33% between mid-2011 and mid-2012, according to USDA.
"The highest percentage gain of any state in the nation!" he exclaims. "It's pretty clear we have recently experienced a multi-year land boom. But has it reached the point of a being a land bubble?" he asks. "If (1) we define a bubble as one where current high-bid prices no longer reflect solid economic fundamentals, and (2) we consider the events and economic conditions of the past 12 to 18 months, then I would say, yes."
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