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Is now the time when the land market goes bust—FINALLY?

Is now the time when the land market goes bust—FINALLY?. Steven J. Taff Department of Applied Economics University of Minnesota Southwest Minnesota Ag Lenders Conference Lamberton August 12, 2014. Boom? Bubble? Bust?. Source: Minnesota Land Economics, 2014.

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Is now the time when the land market goes bust—FINALLY?

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  1. Is now the time when the land market goes bust—FINALLY? Steven J. Taff Department of Applied Economics University of Minnesota Southwest Minnesota Ag Lenders Conference Lamberton August 12, 2014

  2. Boom? Bubble? Bust? Source: Minnesota Land Economics, 2014

  3. Does this foretell the price of land?In theory, No

  4. In practice, maybe it does?

  5. We’ll never know everything we want to know about land prices • We want to know the possible selling price of any given individual property. • But we can never appraise all properties in area. • So we must infer individual prices from area averages. • So we must rely on samples. • And samples can mislead us.

  6. Ways of Knowing • Appraisals • Surveys (USDA) • Mass appraisal (Assessors) • Transactions (Minnesota Land Economics)

  7. Assessors are close Source: Minnesota Land Economics, 2014

  8. Farmland and Recession Source: Minnesota Land Economics, 2014

  9. Inflation sometimes matters Source: Minnesota Land Economics, 2014

  10. Location matters Source: Minnesota Land Economics, 2014

  11. One region’s drop… Source: Minnesota Land Economics, 2014

  12. Why my data may be bad • The market is really thin • The really big sales happened after my books closed—be patient and all will be revealed! • “Averages” can be misleading

  13. The market is really thin Source: Minnesota Land Economics, 2014

  14. “Real” seasonal movements, or sampling artifacts? Source: Minnesota Land Economics, 2014

  15. Averages can be misleading Source: Minnesota Land Economics, 2014

  16. Does “average” have any meaning here? Source: Minnesota Land Economics, 2014

  17. All the data, not just some of it Source: Minnesota Land Economics, 2014

  18. Subsidies no longer matter

  19. Is farmland really overpriced? (Southwestern Minnesota) Sources: Southwestern Minnesota Farm Business Management Association and Minnesota Land Economics

  20. Bust coming? YES! (2005 version) • No way that farm income supports these prices • Low interest rates are propping up market—and they’re going to rise • High government payments are propping up market—and they’re going to fall

  21. Bust coming? YES • Land prices have got to eventually catch up to lower expected incomes. • Low interest rates won’t last forever. • We’re going to stop romancing Ethanol.

  22. Bust coming? NO! (2005 version) • Much of the gain since 1985 through simple inflation • Demand for rural land more diversified

  23. Bust coming? NO • Short term changes should not affect asset markets. • The Market has already adjusted for lower income. • Corn prices might come back up. • We’ve predicted five of the last two crashes—forecasting is hard work!

  24. Maybe the Bust is already here? The “average” is hiding the data. The Bust is here; we just can’t see it. Market participants are misguided, so land prices don’t reflect income reality. We’re too impatient—just wait until next year and the market will collapse, this time for sure, you’ll see!

  25. Of all men’s miseries the bitterest is this: to know so much and to have control over nothing. (Herodotus) • Steven J. Taff • Department of Applied Economics • University of Minnesota • 612.625.3103 • sjtaff@umn.edu

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