Iowa Land Boom Defies U.S. Real Estate Slump


As the Iowa Republican caucus hogs the media spotlight, a less reported but perhaps equally compelling story continues to unfold in the Hawkeye State.

While most of the country continues to struggle with the aftershocks of the housing meltdown, Iowa is riding the wave of a remarkable real estate boom. Republican primary candidates in Iowa needn't fear broaching the subject of real estate as they might in other states: farmland prices in Iowa have skyrocketed more 30 percent in the last year alone, MSNBC reports.

The rapid climb in prices continues a trend that has emerged over the last few years in states across the grain belt. Prices of farmland in some parts of Iowa rose 23 percent last year, The New York Times has reported. The spike has been driven by a boom in crop prices. Buoyed by rising demand for ethanol, the price of corn, for example, has tripled in only half a decade, reports MSNBC.

Some land in Iowa recently sold for $20,000 an acre, setting a state record.



Reminiscent of the real estate boom leading up to the 2007 meltdown, the rise in farmland prices has some experts cautioning that Iowa and its neighbors could be incubating the country's next real estate bubble. The Times reports that the president of the Federal Reserve Bank of Kansas City, Thomas M. Hoenig, told the Senate Agriculture Committee in February that farmers could suffer from a drop in real estate prices if grain prices were to fall and interest rates tick up.

But the risk of implosion may not be as high as some fear, since many land buyers are paying hefty cash down payments for their purchases. MSNBC was told that buyers are often required by banks to pay for close to half of the land that they buy upfront. Strict lending standards like that stand in stark contrast to those that fed the subprime loan crisis.

For the moment, Iowa appears to be poised to enjoy the current rise in real estate prices.

Meanwhile, real estate markets for much of the rest of the country are still sputtering. The Standard & Poor's/Case Shiller Index released last week reported that real estate prices dropped in 19 of 20 cities from September to October. And as of October, banks looked to be on track to repossess 800,000 homes by the end of 2011.

One recent report from the National Association of Realtors has offered a glimmer of hope on an otherwise bleak horizon, however. According to the report, pending home sales in November reached their highest level in a year and a half, possibly indicating the beginning of a market turnaround.

Also see:
How Large We Live: Average Home Sizes Across the U.S.
2011 in Real Estate: The Top 11 News Stories



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