Buying & Selling

Rural Land Lending Forecast for 2022


As we inch closer to March — the month the Fed is expected to raise interest rates — a clearer picture of what the landscape looks like for land buyers is coming into view. With this clarity, many buyers in the real estate industry are feeling a sense of urgency to buy before these hikes happen.

But is moving swiftly the right thing for those looking to make a land purchase in 2022?

The answer hinges on various factors from how the Federal Reserve expects to roll out these rate hikes to long-held best practices about debt and lending.


In December 2021, some Fed policymakers were signaling three quarter-point rate hikes next year. But as recently as February 1, reports suggested there could be as many as four quarter-point rate hikes before 2022 ends.

Why? In a word: inflation.

Consumer prices leaped 6.8% last November from a year ago, according to Progressive Farmer. Also notable were sharp increases in the cost of fertilizers, which have more than doubled, and other ag input prices. These increases have and will continue to cut into farm profits, affecting farmers and also rural landowners who generate income from land ownership through ag-related leases.

So nothing, even rural-based industries like agriculture, are shielded from the inflation the country is facing. To that end, the Fed must do something to stop the bleeding.

The Fed’s Impact on Land Lending in 2022

While the Federal Reserve hopes interest rate hikes will help curb inflation, there’s also concern the economy may be hindered by increased rates. As such, Feds expect to roll out rate hikes incrementally, over the course of 2022 and likely into 2023 as well.

And, even as new reports of imminent rate hikes began filling the front pages of newspapers and social media timelines late last year, this wasn’t really news.

“We know interest rates will eventually go up, because there’s nowhere else for rates to go but up,” says Emily Stamper, a Rural 1st consumer loan officer in Mt. Sterling, Kentucky.

The incremental nature of the projected hikes does offer a window of opportunity for prospective land buyers who, if they choose to act, will still reap the benefits of historically low rates. But as interest rates rise over the next 12 to 24 months, lenders will eventually see its effect. Namely, there will be less people who can afford to play in the rural land market space.

While lenders expect to see some prospective land buyers opt out of making land purchases altogether, others will look to simply spend less.

“So maybe a borrower is able to purchase a $150,000 tract of land based off of current rates, but with a rate increase, that same borrower may only qualify for a $125,000 tract,” says Stamper. In this scenario, the adjustment offsets the higher interest rates and puts the projected payments on the property back within a range the land buyer can afford.

Yet, while it’s true that any rate increase can affect borrowing power and increase interest payments for prospective land owners, Stamper says, it’s also likely that we’ll see enough stability that the rural land market won’t go stagnant either. Ultimately, Stamper expects a more normalized, pre-COVID market.

Current Lending Landscape Remains Favorable for Land Buyers

Here’s the thing: The news isn’t all bad. We’re not looking back and dreaming about the days when interest rates were at a historic low. The interest rates, as of this writing, remain at a historic low.

So if making a land purchase is on your radar, or if you’re that guy who’s got your eye on a specific piece of property right now but the news of higher interest rates has given you pause, it’s time to take action instead. And that doesn’t mean you’ve got to make a move right now, by sunset today. But it does mean you can save yourself quite a bit of money if you choose to act soon.

The first quarter-point rate hike is expected to come in March. The following rate hikes and when they’ll be issued is less known. Reuters reported on February 1 that the Fed is expected to be more aggressive if the initial moves made do not mitigate issues affecting our supply chain, inflation and other threats to stability.

According to Philadelphia Fed President Patrick Harker in an interview with Bloomberg TV, as reported by Reuters, there’s a lot of risk and unknowns, like if inflation becomes worse than expected, that will affect what measures the Federal Reserve will take. “Right now,” Harker says, “I think four 25-basis-point increases this year is appropriate.”

As prospective land buyers consider their options, avoid weighing the short term impact of 2022. Things could swing one way or another in 2023, but the swing isn’t likely to produce more favorable results. The Summary of Economic Projections, published by the Federal Reserve in December 2021, signal up to four increases in 2023 as well.

Here’s another factor that’s often lost on first-time land buyers: Rural lenders like Rural 1st offer tailored lending options and, within those customized packages, there are different interest rates available based on rural property types. This is possible because rural lenders get their financing from a different source — the Farm Credit System, established by Congress in 1916 — than those financing commercial properties or most home purchases.

This is particularly important and advantageous in a climate where the economy is showing signs of instability and interest rates are poised to rise. Working with a rural lender to optimize your rates and financing based on property subtleties and buyer intentions for the property can create value and potential savings for land buyers.

As you consider the factors that will impact land lending and land buyers in 2022, get a bead on the rural land market in your local area by contacting a Land Specialist in your state or region. Or browse our properties. If you’ve already found the land you’re looking to buy, but need more information about financing the property, contact Whitetail Properties’ premium lender.

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