LAND 1.4 Farm Real Estate Values, Rents, and Taxes Farm real estate values and cash rents are important Values of farm real estate (farmland and attached buildings and dwellings) are important to landowners, prospective buyers, lenders, tax assessors, agricultural producers, and local governments. Farm real estate is the major asset on the farm sector balance sheet (currently accounting for more than 75 percent of total U.S. farm assets), and its value provides an indicator of the general economic health of the agricultural sector. Farm real estate underlies the financial stability of many farm businesses whose portfolios derive a large proportion of their value from real estate. In addition to being the largest single investment item in a typical farmer's portfolio, farm real estate is the principal source of collateral for farm loans, enabling farm operators to finance the purchase of additional farmland and equipment or to finance current operating expenses. Some 52.5 percent of the total farm sector debt of $155 billion at the end of 1996 was real estate debt-either mortgages for purchase of farmland or short- or intermediate-term debt secured by farmland. Wide swings in farm real estate values alter the equity positions, creditworthiness, and borrowing capacity of those farm operators and landowners who hold large percentages of assets in the form of farmland. Farm Real Estate Values The rapid increase in farmland values during the U.S. farm real estate values rose 7.0 percent during 1995 (table 1.4.1). This represents an Table 1.4.1-Average per-acre nominal value of farm real estate, by State, January 1, 1989-961 Source: USDA, ERS, based on Agricultual Land Value Survey, June Agricultural Survey; and 1992 Census of Agriculture data. largest regional increases occurred in the Applachian, Mountain, and Corn Belt regions (11.2, 9.8, and 9 percent). The 1995 increase was the strongest yearly gain since 1987. The 7.0-percent nominal increase during 1995 marked the 9th consecutive yearly increase since 1987. The largest State-by-State increases over the 1987-95 period occurred in several of the Northeast States, where most States never experienced the sharp declines in farm real estate value that characterized most other States during the early- to mid-1980's (fig. 1.4.2). Much of this increase can be attributed to strong nonfarm demand for farmland associated with population growth. Another set of relatively high increases since 1987 occurred in the Corn Belt, the region that also experienced the largest value declines between 1981 and 1986. The relatively small increase in Texas is largely a product of the beginning and end points of the time period being discussed. Texas farm real estate values continued to increase until the mid-1980's, before declining and then beginning a slow recovery later than most other States. The counter-cyclical pattern is partially attributable to changing conditions in the oil industry during the 1980's. Figure 1.4.2--Percent change in farm real estate value per acre (nominal dollars), 1987-96 and 1995-96 Table 1.4.2—Average per-acre real (inflation-adjusted) value of farm real estate, by State, Jan. 1, 1989-961 1 Nominal values as of Jan. 1 for farmland and buildings adjusted by the Gross Domestic Product implicit price deflator indexed to 1982 = 100. Source: USDA, ERS, based on Agricultural Land Value Survey, June Agricultural Survey; and 1992 Census of Agriculture data. |