Despite a downturn in the general economy, America's rural real estate market remains strong. And it's getting stronger.

Despite a downturn in the general economy, America's rural real estate market remains strong. And it's getting stronger.

According to the USDA Report of Agricultural Land Values, released in August, 2002, the value of all farm real estate (land and buildings) in Missouri jumped by 10.1 percent last year. Here are per-acre values for the region:

Joyce White and Ron Plain, University of Missouri (UMC) ag economists, at mid-year 2002 surveyed 960 real estate appraisers, lenders, realtors and others in the state. Respondents to the survey were more conservative than the USDA report, but estimated that cropland values had increased by 3 percent from a year earlier, while the value of land plus buildings hiked by 3.4 percent. Pastureland values also grew by 3.4 percent.

In their survey, White and Plain found that 58 percent of the buyers planned to farm the land themselves. And most of the buyers, 57 percent, were local farmers.

"Farmers are out-bidding other investors for land," said Plain. "Lower interest rates are a big factor; relatively low interest makes debt easier to service."

"Rising farm incomes also support solid gains in farm real estate," said Jason Henderson, economist with the Kansas City Federal Reserve Bank's Center for the Study of Rural America. "Last year [2001] U. S. farm income reached its highest level since 1996, as market receipts edged up and the government sent another round of emergency payments to farmers."

Enter the 2002 farm bill
The 2002 farm bill (the Farm Security and Rural Investment Act) may lever up farm land prices-and land rental rates--even more.

"The farm bill in general makes more money available, which should be positive for land prices," said Plain. "It makes it easier for older farmers to hang onto their land, too. The conservation features of the farm bill especially should be a positive influence."

For example, the 2002 farm law expands Conservation Reserve Program (CRP) acres from 36.4 million to 39.2 million. To qualify for CRP, land must be highly erodible and have been cropped in four of the past 6 years. But at 5 percent, a $65 per acre annual CRP rental capitalizes out to $1,300 per acre. In today's investment climate, a 5 percent return is not bad.

The farm bill also increases working land payments, with $2 billion earmarked for the Conservation Security Program and another $9 billion allocated for Environmental Quality Incentive Programs.

A place to live and play
"Sometimes, forces that cause shifts in land values are not directly related to the farm economy," noted Richard Sullivan, statewide rural real estate appraiser for the Missouri Farm Credit System. "Social, economic, governmental and environmental forces continue to affect land values."

Sullivan noted that since 1987, benchmark values for land in northern Missouri have increased from $578 to $1,310 per acre.

"That represents a 127 percent increase and nears the all-time high of $1,317 per acre, established in 1981," he said. "Similar increases have occurred in other regions of Missouri."

This increase defies low commodity prices and increasing production costs for much of that period.

The desire for a suburban or ex-urban lifestyle continues to put upward pressure on rural real estate markets. In the most recent 5 years for which records are available, nearly 10 million acres of farm land were converted to urban uses. Older Americans are moving to rural areas to retire or rediscover their family roots. Demand for rural land for retirement or recreation continues to build. In the UMC survey by White and Plain, 18 percent of the buyers said they did not intend to use the land for agricultural purposes.

"Over the years, our biggest demand for rural real estate is from people who are looking for a few acres as a place to live or play," said Blaine Silvey of Mid-Mo Realty in central Missouri. "But demand for larger tracts of farm acreage is up too, and there isn't much available.

"We recently sold 154 acres for $188,500, or about $1,225 per acre," Silvey continued. "The place has good fences, good water and is mostly pasture, with a few acres of average-to-fair cropland. We could sell larger farm tracts if we had them on the market; the demand is running ahead of supply in this area."

The demand for rural real estate should remain strong in the near future, believes Henderson.

"Government payments will undoubtedly continue to support farm incomes, which will buoy farm real estate," he said. "And rural housing activity continues to strengthen, as the economy gains strength."

Over the longer term, as baby boomers (the largest generation of Americans) begin to retire, their migration to rural areas could soar. That would mean even stiffer competition for rural land.