Reflections & Projections
The year 2014 was a positive one for us with good land and timber sales. We are certainly not at the 2007 volume of sales, but we have experienced good activity. The larger-size land sales ($500,000 & up) have lagged, but smaller tracts have moved very well. All sales are directly related to price and the associated real value. Farmland and timberland are in demand at a price based on the property’s projected return. Recreational properties are still lagging, as discretionary spending for many is in short supply.
Interest rates are low and obtaining financing does not seem to be quite as difficult. Pricing a property and the appraisal process is much more difficult. A property must appraise using viable comparable properties for the bank to lend on land. The lending institution typically requires 20 to 30 percent of the purchase price as down payment. We have found that land must be priced within reasonable parameters or buyers will not make offers or even look. Listing a property at too high a price does not work. It is vitally important to evaluate every asset in determining price and to be able to justify the valuation. A trained and experienced land broker will understand this and be able to make this valuation.
The timber market is holding steady with its typical sporadic ups and downs. In our experience, it is very helpful to already have your timber evaluated and ready to sell when the market is up for your type products. We have helped many landowners catch that perfect market and take advantage of it. Pulpwood prices are strong in our area. CNS and pine sawtimber prices are good, depending on planted wood versus natural wood, and some weather related adversities. Hardwood sawtimber prices are excellent. The USA, and specifically the Southeast, is a very competitive and strong market. We recently sold land to a Chinese company expanding into our area to supply raw material to their mill in China. They see our area as a viable sustainable market for their business.
Green Hill Land & Timber has a positive outlook going forward but we are cautiously optimistic. Commodity prices are dropping, which are causing farmers to reevaluate their budget and farm plans. This will likely cause farm rents to adjust down. Some predict this will have an effect on land values as well. This may be a good time to sell farmland, especially if interest rates begin to rise. This administration has kept interest rates low and have not shown any interest in raising rates at this point. Many landowners find they get a very comfortable return or cash flow from their farm leases. This is another positive feature of land ownership.
We see technology as a very exciting and positive aspect of farming. Technological advances reduce costs, helping to create a positive bottom line. Low interest rates and low energy costs have also been a very significant factor in the farming community. This increased efficiency and productivity adds stability to our land market. Though the outlook appears positive, we see a very competitive market, with investors scrutinizing and analyzing every penny. This stems from one of the longest recoveries this country has experienced, causing a change in every American’s mindset. Each property will be identified, analyzed and classified based on its own associated value. There will be more work involved in determining why an asset is worth the asking price versus another property. Appraisal values will be scrutinized more closely. Lending institutions are more willing to finance but are requiring buyers to have more skin in the game in the form of higher down payments. There will be more sales and lending, but nothing comparable to the bubble level of sales in 2007. Quality tracts will demand premium prices, but lesser properties’ prices will reflect what the property has to offer based on return. The days of “Oh it’s priced a little high, but that’s OK” are gone.
The timber market will remain good with periods of short-lived exceptional prices. Our area is very competitive and supplies a huge amount of fiber. As the economy continues to strengthen, we hope to see pine sawtimber prices increase but expect it to be a lengthy process. If you have high quality hardwood sawtimber, right now is the time to test the market. Find out what your timber investment is and what it is worth. Your timber could be a larger asset than you think.
If you are looking to sell land and/or timber, Green Hill has the experience, expertise and attention to detail that will make your investment a success. As a land or timber owner, it is imperative you know all there is to know about your investment to be certain you get the best return possible. We want to help you do this. Let us know if we can be of assistance to you.