As Housing Cools, Market For Land Heats Up
Land ho!
That’s the new cry for many as the the Florida housing market cools, and the rush to snap up whatever undeveloped property remains is officially on.
It’s not just Florida, either — buyers are staking their claim on every piece of undeveloped land they can get, from New England woods to big-sky vistas in Montana. Many people are buying dream lots now, while the land is available and prices affordable, with plans to one day build a home.
Others are investing in property they want to use today. In rural Texas, for example, land that wouldn’t even sell a few years ago has become so popular with hunters and off-road vehicle fanatics that it now fetches premium prices from buyers flying in from Florida, California and other hot housing locales.
In the face of demand like this, prices for undeveloped land in many parts of the nation are shooting up. Around the country farmland values rose at their highest rate last year — 11 percent — since 1981, according to the U.S. Agriculture Department. Rural land in Texas hit a historic high of nearly $1,500 an acre on average last year, up 75 percent since 2000.
In some ways, buying land and buying a second home are similar. You are capable of generating income — a house through rental income; land through leases for farming, hunting, fishing, ranching or mineral rights. And, in both cases, the first three rules of successful real estate purchases remain location, location and location.
Land also comes with its own set of drawbacks, however, that quickly turn picture-perfect parcels into… something that’s pretty to look at, but not much else. Among the important questions: If you plan to build a vacation home there or eventually live there, can you get electric power onto the property? Can the land support a water well and septic system?
What’s more, land might make a good investment, but it can be a lot harder to sell in a pinch than a house, since fewer people are looking for land.
The U.S. has roughly 1.5 billion acres of rural lands, representing about 65 percent of the country. Prices vary widely, as parcels can go for as little as $250 an acre in the brush country of far southwest Texas, but draw offers of $3,000 an acre for timber and pasture land in Iowa, or as much as $27,000 an acre for scenic riverfront Colorado land.
In some circumstances, it can make a lot of sense to buy land in advance of your intention to build on it, especially if you find the right plot and are particularly fond of it. Over the course of years or decades, land is likely to escalate faster in price than the cost of one day building a house on it. On undeveloped land, property taxes are typically lower, and you have no expenses for electricity, water or insurance.
Tips for buying a vacant lot:
- Consider having a survey done of the land you’re interested in. Property lines aren’t always well-defined, and soil may be unable to support a building in the spot you really want to.
- Pay attention to how you access the land. In some places, makeshift roads that cross a variety of property lines have become semipermanent through the years, while nothing about them is legal. So you may not have legal access to your property.
- In urban developments, zoning laws are often in effect to prevent certain types of construction or businesses. That’s not always true in rural land, meaning you could find one day that your dream property is bordered by a new mobile home park. Consult a knowledgeable agent to make sure you know what laws are in place.
Land prices often don’t move in the same way home prices do.
Despite the run-up in recent years in many U.S. housing markets, home prices typically rise alongside the rate of inflation — subsequently, mortgage rates. With land, appreciation is traditionally more closely tied to how much money it can generate from activities such as farming or grazing. In general, land won’t fall as far as overpriced residential markets might.
Why? Because while the Florida housing market can be overbuilt, land can’t.
