Western land values navigate economic uncertainties

In a landscape marked by high-interest rates, fluctuating farm incomes, and evolving water regulations, land values in the Western United States exhibit a complex pattern of stability and change.

According to recent data, land values across Washington, Oregon, Montana, and Idaho have remained relatively steady despite these challenges. In contrast, California's land market presents a dichotomy: values in the Central Coast, buoyed by premium vineyard and high-quality croplands, continue to rise, counterbalancing the Central Valley's decline due to falling commodity prices impacting walnut and table grape acres.

Arizona's land market is experiencing a slowdown. High-interest rates, softening commodity prices, and decreasing irrigation water supply contribute to extended marketing times and reduced sales activity.

Key factors influencing the land market include:

1. Interest rates: Q4 2023 saw high-interest rates acting as a significant deterrent to land acquisitions. The impact is evident in the housing market's cooldown, potentially reducing development pressures on agricultural lands near urban centers. However, agricultural lands remain sought-after, with high demand keeping prices firm.

2. Land availability: The low inventory of agricultural land, particularly in water-secure areas suitable for high-value commodities in California, continues to support land values.

3. Farm income and commodity prices: Despite the USDA forecasting a 25.4% decline in farm-sector income for 2023, land values have not mirrored this trend. The perceived stability of land as a long-term investment seems to override short-term fluctuations in commodity prices.

4. Water supply and regulation: In California, growers banked significant water reserves in 2023, aiding over-drafted aquifers. However, the Sustainable Groundwater Management Act may introduce stringent regulations. Arizona faces challenges with reduced water levels in Lake Mead and the Colorado River, affecting land activity in the speculative market.

5. Drought conditions: The West experienced varied drought conditions in 2023. Good snowpack and spring rains brought some relief, but late summer saw a return of drought in over half the region. Despite this, land values have not shown a direct correlation with drought stress or reduced yields thus far.

The Columbia Basin Irrigation Project in Washington is drawing national interest, attracting buyers keen on investing in farm ground with reliable water and diverse crop options. While irrigated areas had sufficient water through 2023, dryland regions faced drought stress, though this has not yet significantly impacted land values.

Overall, the agricultural land market in the West remains robust, with transactions indicating stable to increasing prices despite the low inventory. The full impact of ongoing economic and environmental factors on land values will continue to unfold, warranting close monitoring by stakeholders in the agricultural and real estate sectors.