RE: does land value decrease? or just increase
It’s an unusual situation, but land can drop in value. Just ask people who lived in Dallas, Austin or Houston in the early and mid-1980’s. Land prices dropped by more than half in about a year-and-a-half. Land prices in the Boston, MA and Washington, DC areas also dropped about 10%-15% in the early 1990’s.
Generally this doesn’t happen, especially in rural areas, but it can if there has been a lot of speculation. And, as an economist, I’d say that right now is a likely time for this to be happening in SOME markets, due to speculation, the housing credit crunch that I think we’re just starting to see, and the resulting large inventories of unsold real estate. The good news is that land prices always eventually come back up, if you’re patient (sometimes it takes 6 or 8 years…).
The “problem” with real estate deals is, if you finance them, which is the way most people leverage their buying power, it can greatly increase your profits in an up-market, but, in a down-market, it can backfire even more than stocks can. Here’s how: Let’s say you put down 10%, and prices drop by 15%. Then, you essentially have to pay someone 5% just to take your land from you, not counting closing costs, etc. Since you can’t generally finance stock purchases, this never happens in those markets. By the way, the reason people can’t buy stock on margin any more is because this is essentially what propelled the stock market crash of 1929, which was a major factor in starting the Great Depression. I think it’s really pretty scary right now in real estate, at least in some markets.
You should look at your specific market and see how land is moving before you invest.