Buying Land In A Downturn

Economic downturns are typically not helpful for real estate values, and land is certainly not immune to the effects. However, the economic contraction we are currently experiencing is different. Demand for land is stronger than I have seen it in the 10 years that I have been in the land business, during most of which real estate was in an upswing. I don’t recall the last time I saw multiple offers on land listed at market value in rural areas, but it has happened several times now during this period of various government shutdowns.

Over the past several months there has been a toll on the world with loss of life, companies going out of business, as well as fear and anxiety for many in connection with both health and finances. It is tragic, and I have deep sympathy for those affected. As is often the case, there can be unexpected silver linings during a crisis, and land investing is certainly just that.

The pandemic has created a market for buyers that would not otherwise be interested in land. Fear of being in cities or living in condos has contributed to a tremendous increase in demand for land. Having the extra space, potential for a single-family home and “social distance” from neighbors seems to be what’s trending in the land industry right now.

Another motivator for land is that it is a safe and tangible asset. The Federal Reserve has been printing money in spectacular fashion, which some fear could one day devalue our currency. Land is a finite resource that has utility — living, farming, etc. — and is something investors can visit, see and touch, as opposed to stocks, derivatives and most commodities. Investors like the simplicity and rawness of land.

Household spending has cratered during the shutdowns. I know for me and my family, our monthly expenses are much lower than normal. Expenditures on eating out, gas, movies, social activities and vacations went down precipitously during the past several months. That seems to be the case for those, at least the ones who still have their jobs, who are looking to do something with the excess cash.

The homebuilder sentiment index shows how optimistic homebuilders are in America. When the index is over 50, homebuilders see a bright future for real estate. Under 50 means they are pessimistic. Nationally, the index went from 72 in March 2020, down to 30 in April 2020, a record one-month drop. It has found its way back to 72 in just three months. On the West Coast, the swing was even more dramatic: 79 in March 2020, 32 in April 2020, and at 80 in July. When homebuilders are optimistic, which the index certainly demonstrates, they devour land.

If you are able to get a deal on land in this environment, jump on it! Land is a safe, easy to understand and tangible investment that trends upward over time. It is a finite resource that they are not making any more of — and if you score a deal that you decide to sell in this market, it won’t take long for that land to move!