After enduring tumultuous years marked by pandemic lockdowns and political uncertainties, lingering challenges continue to loom over us. Despite this, land values and sales have been steadily increasing. Why is this the case? Is land still a good investment. Let's cover the top 3 reason we see to buy land still.
1. The Impact of Inflation on Land
Inflation, in its simplest terms, refers to the erosion of a currency's purchasing power. During the COVID-19 pandemic in the United States, significant "money printing" occurred, albeit a complex process involving central banks. The primary objective was to bolster and sustain the economy.
Various measures were implemented, including stimulus checks, enhanced unemployment benefits, bond purchases by the Federal Reserve, and infrastructure projects. These fiscal initiatives resulted in an overall positive impact, albeit with a downside - the escalating costs of goods. Prices of essential items such as food and automobiles have already surged by approximately 10%. Even if you do not closely monitor price fluctuations, chances are you have noticed an increase in everyday expenses.
The Consumer Price Index (CPI) serves as a reliable indicator of these changes, reflecting the monthly percentage shifts in the cost of goods. The CPI is currently on an upward trajectory, although most experts do not anticipate hyperinflation. Instead, they foresee a stabilization as supply levels align with demand, leading to a decline in inflation. However, this adjustment is gradual and the future remains uncertain, notwithstanding official forecasts.
An updated 2022 CPI chart can be accessed at any time, showcasing the significant changes that have transpired. The year 2021 witnessed a remarkable spike in the cost of goods, a surge unparalleled since 2008.
Certain sectors have been disproportionately affected, such as the automobile industry where both new and used car prices surged by 10% in 2021, a trend continuing into 2022. Notably, the ongoing chip shortages have further exacerbated this situation. The CPI index illustrated in the chart encompasses a wide range of commodities, including food, utilities, housing, and more. In times of rising inflation, individuals seek inflation-resistant investment options.
As per Investopedia, "Many investments historically serve as hedges against inflation, including real estate, commodities, and specific types of stocks and bonds."
2. Challenges of Affording Homes: Unattainable Rates & Costs
Moving on to land, while it falls under the real estate category, it distinguishes itself from conventional residential properties. Housing prices have reached unattainable levels for many prospective investors. Conversely, raw land presents an opportunity as prices remain within reach for the average individual.
Raw land is an undervalued asset with minimal maintenance costs, low long-term holding expenses, and the potential for appreciating in value. In certain markets and locations, land values can experience substantial growth. As a landholding firm, we have witnessed significant value increases in 2021, providing substantial returns to our clients who engaged with us early on. Annual assessments, which typically exhibit modest fluctuations, have been significantly impacted by the prevailing market conditions, resulting in unprecedented land value spikes.
The surge in land values and demand is not solely attributable to inflation; multiple factors contribute to this trend. The United States has historically undervalued land due to its abundance, with a predominant focus on residential properties. Comparatively, raw land prices in other countries are significantly higher, making land investment in the US relatively appealing.
The housing market has been experiencing elevated prices since the aftermath of the 2008 housing crisis. Developers have capitalized on this trend, leveraging the favorable market conditions for profitable home constructions. However, the current inflationary environment, particularly the exorbitant rise in lumber prices, has posed challenges for developers.
According to USA Today, lumber prices surged by over 250% in the past year, significantly impacting the construction costs of single-family homes. This unprecedented spike in lumber prices has added substantial costs to homebuilding projects, prompting developers to reassess their strategies and potentially delay new constructions until prices stabilize.
The scarcity of new housing developments has led to an increase in the prices of existing homes, further driving up the demand for alternative real estate investments. Land, as an alternative investment, presents a dual opportunity. On one hand, desirable raw land restricts the supply needed for future developments, potentially raising land acquisition costs. On the other hand, for individuals considering building homes on purchased land, controlled construction costs may yield profitable outcomes, especially with favorable land deals.
While developers predominantly rely on wood for single-family home constructions, individual builders have the flexibility to explore alternative construction materials such as cinderblocks. This shift towards alternative building methods is driven by the long-term durability and safety advantages offered by non-wood structures.
3. Emergency Use Land
The onset of the COVID-19 pandemic witnessed panic buying and supply chain disruptions, leading to shortages in essential items such as toilet paper. The prospect of major cities running out of supplies prompted concerns about emergency preparedness and self-sufficiency.
During this period, the demand for land surged as individuals sought refuge in remote properties for emergency living arrangements. Raw land emerged as a viable solution, offering temporary shelter and self-sustainability options in times of crisis. The affordability and maintenance-free nature of off-grid land, particularly in remote locations, appealed to a growing segment of customers seeking independent living solutions.
While the surge in land values can be attributed to various factors, including inflation and emergency preparedness trends, the increasing popularity of off-grid living and the affordability of land contribute to this ongoing trend. As land becomes scarcer and more expensive, its role as a versatile investment option continues to gain traction, with potential for further growth in the future. With these top 3 reason it's always hard to predict future prices, but no one is making more land and you can't say that about many other investments.
