Land and house prices

[bluefargo]

I,M sitting in the line up at Viterra in Saskatoon so I will have lots of time on my hands. Surely the worst run grain operation anywhere. Waits of four to six hours possible.
Anyway interested in Jagfarms discussion on land prices a few posts back. A shrewd and wealthy farmer I knew twenty years ago said the way to tell what land was worth was to compare it to a average house in town. You know it worked then and for a number of years before that. But it really doesn,t work now. A run of the mill three bedroom bungalo will set you back 300000 in Saskatoon. Land in the area outside the city influence is in the neighborhood of 100000 per quarter with the odd guy asking a thousand per acre but not getting it.
There is probably no reason why this relationship should exist but still interesting why it has changed.
Any theories from you economists out there?
By god the lineup,s moving. Got to pull ahead!

[tmyrfield]

CAPITAL!!!!!
Capital is acquired with tax paid dollars. who is earning more money on their investment? a city worker who invests 38 hours/week in his job or a farmer who maybe in a good year gets $3000/Million invested as well as his pittance for the 36 hours /week he works.

[aggie]

it would be interesting to see if there is a connection to the fact that the 'average consumer' spends less and less of his $$ income on food. If that continues in this direction, then presumably the land would continue to fall in value as compared to the 'rest' of his/her spending patterns.

I doubt the 'old guy' could have conceived that the same consumer would be spending $200-300-400 per month on cable/cell/phone/internet etc...I think that patterns just keep changing... we need to be aware though and keep fighting back...

[grrrr]

I remember as a kid when the talk was that a new combine was the same price as a quarter of land. That is no longer the case as a new combine is north of 300 g's and the very best land around here sells for about $150,000. Then it was the house in town and a 1/4 of land. Next it might be that new hydrogen/electric powered 1 ton extended cab and a 1/4 of land. The times, they are a changin'.

[per]

As you get closer to a city the influence on land prices is exponential. Where I farm it would take 2 or 3 combines to buy a 1/4. I am a half an hour out. Go twice as far it is 1 combine, half the distance it would take a dealership full of them.

[Jagfarms]

Years back there were farmers who farmed 2 or 3 quarters of land and that is all they did and they made a living. Now it is hard to make a living with 20 quarters of land if you do not have some off farm income.

[cottonpicken]

It works perfectly well,the answer is just a "that
cant be right" mentality.

Comparisons of the prices of things are used to
show what is undervalued and what is overvalued.

It is a knowen truth that a man has only had to
make 4 trades among the major asset classes in his
life to be quite wealthy. Relestate,
commodities,bonds,stocks.

Just think about the last 40 years.

[bluefargo]

CP
You hit upon what was in my mind when I asked the question. One would think there is some sort of relationship between farmland and the house in town. They are both real estate. I guess you would'nt expect the close correlation between canola and soybeans for example.But still I can,t help but feel that something isn't quite right here.
Either farmland is too low or house prices are too high. Or a little of both. I also think house prices will take a hit when interest rates inevidebly rise.

[Jagfarms]

If you compare the average wages some one
working in Saskatoon made in the 1970's to what
they are today they have went up quite a bit. I
would say 5 to 6 times more. If you look at the
grain prices today and what they were in the 1970s
there is not much difference. What should the
grain prices be today compared to the average
wages that paid today?

You only need one house to live in. How many
1/4's of land do you need to farm to make a living
today? What does the machinery cost to farm that
much land?

If you have to hire some one to work on the farm
how much wages do you have to pay to get a good
worker?

When I add it all up the land prices do not make
sense to me. When the grain prices were better like
they were in 2008 and 2009 it was not so bad. The
way grain prices are going it doe not make any
sense at all.

Even the good prices we had in 2008 and 2009 do
not correlate with how the wages have increased
since the 1970's.

[bluefargo]

All good points Jag.
But land is a funny market. It almost never makes economic sense to buy land. It is always above what you can pencil out. There have been a few exceptions to that but they are rare. If you can pencil out a land purchase you should definately buy.

I know that doesn't address your points on wages in relation to land etc. I guess technology has advanced to where we can produce more and more for less and less.

[wmoebis]

Just reading this topic and I was just thinking. If the price of grain was up and mach and land was down how much land would everyone be farming.

Is everyone getting bigger because they have to or other reasons. Would they sell if there was more money in farming? Or would they want to get bigger because there was more money in it?

[fjlip]

That will never happen. Soon as the gross income increases land and rent goes up. Few buyers do the math on short term profit. We are all long term optimists.

[Hopperbin]

Interesting, whenever I bought land in the past I penciled in not making a profit on it for a few years. If not taking into account paying off the loan. When buying a house one must make a profit to buy the house. In 30 years with not much maintenance that house will be severely depreciated compared to building a new one. The land if eventually paid for will provide income for generations until someone borrows back against it and must sell it to pay off debt. I know people that in my parents age had 3 quarters of land rented out while they had good paying jobs. They are Now have extremely wealthy next eggs. That could probably have no problem buying out the 20 quarters I farm and I still have debt.