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Napanee, Ontario | if you view interest as a static fixed amount, and the land price as a variable to the rate, which I would mostly agree with, it was the same in the 80's no?the land was bid up to the price they could afford in the 70's based on the rates available, and higher crop receipts, just like today.
What smoked most guys in the 80's wasn't just the low crop receipts, it was their mtg renewal rolling over at 5-10% higher interest rates. The interest rate will always be bid into the price of the land, as you say, just like it was in the 80's. The problem lies in when rates change...
the 80's were a two punch combo to equity - horrible crop receipts yes, But the the death knell was a massive cash flow shortfall on rising rates rolling over your mtg. Right now, you only have one of those items... and I would say crop receipts are not near as bad yet as they were then.
Sure, time will tell. But as it looks now, it's going to take a lot of time - a lot more than the 80's - if it is just poorer crop receipts, and no interest rate catalyst. Enough time that it likely won't get there without the latter.
Edited by OldMcdonald 1/23/2015 09:05
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Talked to a banker.....
