The rapid climb in prices continues a trend that has emerged over the last few years in states across the grain belt. Prices of farmland in some parts of Iowa rose 23 percent last year, The New York Times has reported. The spike has been driven by a boom in crop prices. Buoyed by rising demand for ethanol, the price of corn, for example, has tripled in only half a decade, reports MSNBC.
Some land in Iowa recently sold for $20,000 an acre, setting a state record.
Reminiscent of the real estate boom leading up to the 2007 meltdown, the rise in farmland prices has some experts cautioning that Iowa and its neighbors could be incubating the country's next real estate bubble. The Times reports that the president of the Federal Reserve Bank of Kansas City, Thomas M. Hoenig, told the Senate Agriculture Committee in February that farmers could suffer from a drop in real estate prices if grain prices were to fall and interest rates tick up.
But the risk of implosion may not be as high as some fear, since many land buyers are paying hefty cash down payments for their purchases. MSNBC was told that buyers are often required by banks to pay for close to half of the land that they buy upfront. Strict lending standards like that stand in stark contrast to those that fed the subprime loan crisis.
For the moment, Iowa appears to be poised to enjoy the current rise in real estate prices.
Home prices in Danville, Ill., underwent a smaller-than-average decrease from their peak in the third quarter of 2007. Moreover, home prices increased slightly (1.5%) from the second quarter of 2010 through the second quarter of 2011. This was only a momentary improvement, though, as home values dropped 9% from January to October of this year.
Yuba, Calif., was one of the hardest-hit real estate markets in the country during the recession. From its peak in the second quarter of 2005, home values in the region plunged a stunning 51.1%, one of the 10 biggest declines in the country. In the first 10 months of the year, prices fell just over 9%. Unemployment in Yuba is 16.7%, the third-highest rate in the country. This is actually a substantial decline from the beginning of this year, when it had a rate of 21%.
Tucson’s economy was hit harder than most areas in the country. This is also true for its housing market. The metropolitan area has had very high foreclosure rates. This, combined with what has been a weak job market in the area, caused home prices to drop 42.8% from their peak in the first quarter of 2006. Home prices are still falling, although at a much slower rate than in previous quarters. From January to October of this year, home values fell 9.36%.
Since their peak in the first quarter of 2006 to the second quarter of 2011, home prices in the Reno-Sparks metropolitan area sank a jaw-dropping 51.1%. This is among the largest drops in the country. Home values in the region have yet to increase at all, however, their rate of decline has slowed down. Additionally, the metropolitan area had a foreclosure rate of nearly 5% as of September, among the highest rates in the country. The overall economy of the Reno-Sparks area is still in bad shape, with an unemployment rate of 13.3%, which is much higher than the national average.
Home values in the Bloomington-Normal metropolitan area have decreased more than those in any other area of the country from January to October 2011. Home prices in the metropolitan area did not peak until the first quarter of 2008. According to Fiserv-Case Shiller, home prices have declined just under 1% from their peak to the second quarter of 2011. From January to October of this year, however, they dropped a dramatic 10%.