The big real estate news in Iowa in 2013 is largely commercial- and farm-related.
Forbes Magazine recently named Des Moines one of a handful of emerging downtowns, thanks to the city’s efforts to revitalize its commercial core. The distinction is focusing national attention on the city’s Principal Riverwalk, public art, and attempts to increase housing.
The Business Record published an article in March (“Commercial real estate: Steady as she goes”) that quoted Bill Wright, senior vice president at Terrus Real Estate Group, saying, “Des Moines will remain primarily a conservative, stable market for construction, development and owning commercial real estate.”
The article went on to add, “the area will bristling with activity next year, with work planned to begin on the conversion of the former Younkers building to apartments, and work continuing at the Des Moines and Fleming buildings, to name a few projects.
“Wright doesn’t expect to see many speculative projects launched in the new year. ‘One natural progression that resulted from the recession was the slowdown in speculative commercial real estate construction in the metro,’ he said. ‘This slowdown has been good in that a number of vacant buildings have been leased or sold. I do not foresee a “boom” again where we will see a flurry of new speculative projects.’”
Another article published in March (“Farmland prices: Is the bubble about to burst?”) by Gannett indicates record-high commodity prices have left growers with cash to purchase more land. “And what the farmers don’t pay for out of their own pockets, historically low interest rates provide them with easy and cheap access to money to close the deal,” it reads. “The favorable mix of both cash and credit has provided fuel to drive up land values across the Midwest, stoking fears of a bubble ready to burst.”
Iowa’s farmland values have grown 90 percent since 2009, with an acre that sold for an average of $2,275 a year ago going for $8,700 now, according to Iowa State University economist Mike Duffy.
The Gannett article quotes Michael Hein, vice president of the Liberty Trust and Savings Bank in Durant, Iowa, saying current farmland market conditions are unsustainable. “The concern clearly is not so much how much higher are they going to go, but when this bubble breaks, how low will they go and what will the aftermath of that be If profits start to diminish, there will be an impact on land values as well.”
According to economists and bankers, the eventual drop in land prices is unlikely to be as severe as in the early 1980s. That crash was particularly hard on Iowa, where the value of the state’s farmland plummeted from $2,147 an acre in 1981 to a low of $787 five years later, a drop of 63 percent. The crash put one-third of the state’s farms out of business.
Today, farmers are in a better financial position to begin with, many of them using as much as 75 percent of their own cash to finance land purchases. The U.S. Department of Agriculture reports U.S. farmers have the lowest debt-to-asset ratio on record.
On the other hand, a drop in land prices means farmers are losing their own cash investment. “The shock absorber is the enormous amount of farmer capital that they have invested in real estate,” said John Blanchfield, a senior vice president and director of American Bankers Association’s Center for Agricultural and Rural Banking, as quoted in the Gannett article. “The cautionary tale is this: Farmers hate liquidity. They just can’t stand to have money in the bank, and so an enormous amount of farmer liquidity has been invested in real estate. If there is a rapid correction in commodity prices … the liquidity that farmers should have had to tide them over in a poor cash flow period” has been invested in land, he said.
The future of farmland prices will hinge primarily on weather, particularly in terms of the Midwest’s ability to recover from the 2012 drought, widely regarded as the worst since the 1930s Dust Bowl.
In residential real estate, foreclosure rates in Des Moines fell in December over the same period in 2011. Real estate analytics firm CoreLogic reported the rate of foreclosures among outstanding mortgage loans was 2.35 percent, compared with 2.48 percent in December 2011. The national rate in December was 2.96 percent. The rate of mortgages that were 90 or more days delinquent dropped to 4.32 percent in December, down from 4.78 percent a year ago, CoreLogic said in a news release.
Home sales crept up again during January, according to a recent report by the National Association of REALTORS. Existing-home sales, which include recently purchased single family, townhomes, condominiums, and co-ops are on pace to reach 4.92 million annual units, up 9.1 percent compared to January 2012, according to the report.
NAR chief economist Lawrence Yun says that low inventory is creating a stronger seller’s market. “Buyer traffic is continuing to pick up, while seller traffic is holding steady,” he said. “In fact, buyer traffic is 40 percent above a year ago, so there is plenty of demand but insufficient inventory to improve sales more strongly. We’ve transitioned into a seller’s market in much of the country.”
An article published in March in the Cedar Rapids Gazette (“Cedar Rapids residential property values ‘flat’; commercial property up 8.5 percent”) reports the value of residential property in Cedar Rapids is stable, having increased only one-half percent.
The article quoted Scott Labus, city assessor, saying that 42 percent of residential property owners in Cedar Rapids saw no change in their property value, while 33 percent saw a decrease and 25 percent an increase.
Earlier in March, the Gazette reported (“Home prices post largest year-over-year jump since April 2006”) that Cedar Rapids home prices, including distressed sales, increased by 1.9 percent in January compared with the same month in 2012.
The article continued, “On a month-over-month basis, home prices decreased by 1.0 percent in January 2013 compared with December 2012. Excluding distressed sales, year-over-year prices increased by 1.9 percent in January 2013 compared with the same month of 2012. On a month-over-month basis, excluding distressed sales, home prices declined by 0.2 percent in January 2013 compared with December 2012.
“In Iowa City, home prices, including distressed sales, rose by 3.9 percent in January 2013 compared with January 2012. On a month-over-month basis, home prices, including distressed sales, stayed the same in January 2013 compared with December 2012.
“Excluding distressed sales, year-over-year prices increased by 4 percent in January 2013 compared with January 2012. On a month-over-month basis — again excluding distressed sales — home prices rose by 0.1 percent in January 2013 compared with December 2012.
“Mark Fleming, chief economist for CoreLogic, said the gains in January, the housing market is poised to enter the spring selling season on sound footing. ‘The improvements are materializing across the country, with all but Delaware and Illinois experiencing year-over-year price gains, and 15 states within 10 percent of their peak values,’ Fleming said.”