As the economy continues to rebuild from the recession, short- and long-term interest rates are still low but could begin inching higher.
According to Mitch Stokes, manager at Northwest Farm Credit Services in Klamath Falls, Ore., short-term rates remain historically low. He said the low rates are primarily a result of the Federal Reserve not allowing them to move based upon market dynamics. Long-term rates have already started increasing as the economy picks up steam.
“Interest rates on the long-term end of the curve are higher than they were a year ago, and they are probably going to go higher as time goes on, but it’s a bit of a rocky increase,” Stokes said.
The increases are the result of an expanding domestic economy, he said.
According to Northwest Farm Credit Services Regional Vice President Bob Boyle, demand for farm real estate is higher today. He said some buyers are established farmers looking to expand operations, and others are investors attracted to profits in agriculture.
He noted that the boom isn’t across the board, and some real estate pockets in the Northwest are not generating a lot of interest.
“I don’t know that I would class it as either a buyer’s or seller’s market. I do know that I would describe this market today as one where I’m seeing significant stronger demand for farm real estate than I’ve seen in recent years,” Boyle said.
Boyle said he believes the demand — largely driven by increased profits — for farm real estate will continue into the foreseeable future.
“When you look at profitability in agriculture, we’re on a tremendous run. We’ve had profits at near-record levels for the last four years,” Boyle said. “We’re seeing those profits begin to dip a bit in 2014.”
Stokes said for the most part, now is a good time to secure a loan or to refinance, depending on when a loan was secured and the interest rate.
“If your loan was made prior to the 2009 recession, you might have a bit of a higher interest rate. There may be some opportunity to get a lower one before rates increase dramatically again,” he said. “I would say before this time next year, it needs to be looked at. We recommend to review at least annually.”
Stokes noted that short-term loans — geared toward ag operating costs — are generally based on a variable rate, and they can change daily. Long-term rates are typically 10 years or more and can be a combination of fixed or variable rates, depending on the needs of the farmer.