S ErH-Al'JiTUAL INDEX OF FA.R!\1 REAL ESTA'I'E VALUES IN OHIO TO DECEMBER 31, 1935

by H. R. Moore

Department of Rural Economics Mimeograph Bulletin No. 88

Ohio State University and Ohio Agricultural Experiment Station

Farm Lands Division The Ohio Association of Real Estate Boards Cooperating

Columbus, Ohio April, 1936

Real Estate Market Activity

A continuation of the upward movement in market activity is reported by a n~jority (75 per cent) of farm realtors. Some mention a much more active market as compared with one year ago; but a larger proportion indicates a moderate gain in activity, a situation in keeping with a moderate increase in price.

Some change has developed in the frequency of sale of different sized farms. 1,Vhen the depression was at its height demand concentrated on ·che smaller acreages suitable for subsistence or part-time farming; during the past two years the demand has broadened to include more average size or larger farms with a eon­ sequent strengthening in price of such properties. It should be added that an active demand continues for properties of 20 to 50 acres in size.

Average Prices

Fann real estate prices have continued the gradual upward trend which started in the latter part of 1933. The total change from the low point in the first half of that year to the end of 1935, as indicated by sales of tracts containing 10 acres or more, amounted to a 27 per cent increase, Or, in terms -2- of dollars, the average price change was from $51.14 to $65.14 per acre. Since this average price covers farms of all qualities it is well to note that some farms of avorage size and larger have been changing hands at prices ranging around ~100 per acre. The strengthening price reflects the anticipation of a continued improvement in the conditions affecting agriculture for the rise in prices of the larger acreages comes from a broadened demand for land created by farm o>vner-operators and other investors.

Table 1.- Prices of Farm Real Estate in Ohio

Dollars Index Year per (1923 = 100) Acre

1923 88.92 100 1924 84.06 95 1925 83.46 94 1926 83.30 94 1927 81.31 91 1928 75.61 85 1929 74.74 84 1930 71.19 80 1931 67 ~98 76 Jan.- 54.97 62 July-Dec. 1932 53.82 61 Jan.- 51.14 58 July-Dec. 1933 54.70 62 Jan.- 60.08 68 ,July-Dec. 1934 60.18 68 ~Tan.- 61.65 69 July-Dec. 1935 65.14 73

Farm Real Estate Prices and Farm Income

The present worth of land is the sum of all future income discounted to tho present time - a preposition which is more or less problomatical due to tho uncertainty of forecasting futuro income. In more practical ter.ms the market price of land is a capitalization of tho anticipated average annual income over a period of years. In any particular year the net income from a farm might be equal to 8 per cent and in the noxt year to only two per cont of tho current market price of tho land. In other words, annual income which is dependent on production and prices fluctuates more from year ~o year than docs tho price of land. This point is illustrated by the index numbers in Table 2 and the accompany­ ing chart,which has been constructed to compare the relative position of not cash income from Ohio agriculture and the price of far.m real estate from 1913 to 1935. As is evident from this chart a number of years were necessary after 1920 for farm real estate prices to s·crike an equilibrium with income. Aft or which both continued to decline at approximately tho same rate~ Likewise, after the l~v point in 1933 real estate prices although moving upvmrd have no·t kopt pace vdth tho chango in income. As interpreted from this chart real estate prices are relatively low as compared with income which is no doub~ a factor favoring an active roal ostato market. mdox 175 ------~---·----~--

(1910-1914 • 100)

150~------~------

Farm Real Estate 125 -----~- -,1

\ I 100...___ I -+-.l.,..---·- I ---- \ I I \ ! I \ I I \ ~·-- ././/I ,, ,/ Net Cash Income 75~------~------+------+-

60~------+------~------+------·~------+----·-----;

Year

Chart I.- Fann Real Estate Prices(l)and Net Cash Income(2) From Agriculture in Ohio, 1913 to 1935

(1) This index as published by the United States Department of Agriculture is taken from es.J.::irr.&.tes ·of farm real estate values made annually in I.:Iarch by crop repo;:-bers. The land values being reported early in the year naturally rei'~act the conditions associated with agricultural income in the previous year. Inspection of the above chart will show that the trend in land value estimates tends to lag behind the change in trend of income, a point well illustrated in 1920 and 1933.

(2) Source: Department of Rural Economics index of gross cash income from sale of agricultural products adjusted to reflect changes in farm expense. (See Table 2). -4-

Table 2.- Indexes of Ohio Farm Expenses, Income and Real Estate Ptices

(1910-1914 • 100) Index of Oluo farm expense cash Ohio net Farm real Year (Prices .,. in- in como cash income os·tatu prices turost + tuxes from (2) t (l) (Ho.rch report) .,. wug;os) sales (1) ( 2) (3) ....._0)

1913 102 101 99 100 1911 101 108 107 102 1915 105 111 106 107 1916 120 121 101 113 1917 145 199 137 119

1918 174 240 138 131 1!!19 201 266 132 135 1920 214 226 106 159 1921 163 130 80 134 1922 155 130 84 124

1923 164 144 88 122 1924 164 146 89 118 1925 167 174 104 110 1926 167 177 106 105 1927 168 165 98 99

1928 167 156 93 96 1929 16G 165 99 94 1930 155 133 86 90 1931 131 95 73 82 1932 110 70 64 70

1933 103 77 75 59 1934 110 89 81 63 1935 114 115 101 68 1936 74

Tho l~oroclosuro Situ~:.tion

Tho general opinion prevlli1s th. t distress sales of farm real estate now have loss influence on tho farm ro~\1 ostato ma.rkot them a. few yoo.rs ago boco.uso in most localities voluntary sales ho.vo become more frequent o.nd prices ho.vo o.dva.nc;.;d. Records of douds indicate tho.t most foreclosed farms a.ro to.ken over by financial institutions who naturally hold tho land until a purchaser is obtained a.t a so.tisfo.cto~J price. Thorofare, most lo.nd involved in credit difficulties has flm·rod into strongur ho.nds from whence it is being transferred gro.ductlly to now owners without disorgcmizing; tho roo.l estate m:..:.rkot which now has tho momentum of renewed activity. -5-

Reports in recont months continue to indicate that the peak of farm foreclosures has boon passed. The highest number of sales in any six-mont~ period sinco July 1933 was in January-June 1935 - a fact which appe:).rs more consistent when it is considered that a delay of a yoo..r or more ofton exists between tho initiation of for ..;closul·c proceedings and tho actual sale. other reasons also have delayed tho final sa.lo of distressed farm real estate causing this phase of tho doprossion to bo drawn out much longer tha.n current conditions appeared to warrant. Table 3 is based on reports (covering 75 to 90 per cent of tho farm area of Ohio in individual months) Which with tho addition of a s:mo.ll estimate represent a complete covorago of all farm real estate foreclosures in Ohio.

Table 3.- Estimated Total Foreclosures of Farm Real Estate in Ohio, July 1933 to

Average Per Aero Num- Total Sales Values Period ber Acres Judgm.o~ Valuation Sales Judg- Valu- Sales consid- mont o.tion consid- oration cra.tion Dols. Dols. Dols. Dols. Dols. Dols.

,Tuly-Dcc. 1933 630 51,467 3,212,221 2,903,528 2,181~523 62.41 56.42 42.39 J--;n.-Juno 1934 609 53~ 715 2,859,506 2,586,129 2070864 53.23 48.15 38.55 ~ ' ,J-~1J y-Doc. 1934 662 56,618 3,290,292 2,949,554 2, 355,671 58.ll 52.10 41.61 Ja.'2 .. ·Juno 1935 780 61,650 3j894,000 3,552,000 2$1958,000 63.16 57.62 47.98 .Tc::.ly-Doc. 1935 630 46,122 3,922,000 2,592,000 2,:~160,000 63.33 56.24 46.90

As is indicated by tho per aero values given in Table 4 tho price a:!; foroclosuro doos not follow closely tho trend in price at voluntary sale, probably duo to the fact that most foreclosed farms oa.n bo bought by tho creditor interests at loss than the judgment which still usually oxoocds tho valun.tion and probable market vo.luo of tho land. Tho ratios given in Table 5 illustrate this point and also indico.to thnt tho foreclosure price now is higher as compared with tho val­ uation established in tho foreclosuro proceedings than in tho period irnmodiatoly following tho lm'l point in 1933.

Table 4.- Voluntary Sale and Foreclosure Sale Prices in ~riou3 ?oriods Comp~rod

Price Per Aero Foreclosure Price as ~ Per- Pori ad Volunt.ary Foreclosure ccntage of Voluntary Price

1926-1928 $80.07 ~~55.25 69 1929 74.74 48.15 64 1930 71.19 49.12 69 January- 67.98 50.23 74 J::mua.ry-June 1932 54.97 43 .. 22 79 July-DecombL'r 1932 53.,82 42.74 79 J anuctry-,June 1933 51.14 39 .. 82 78 July-Deccmbv:r 1933 54c 70 42.39 77 Janue~.ry-Juno 1934 60.08 38.55 64 July-Docomber 1934 60.18 41.61 69 January-Juno 1935 61.65 47.98 78 ~July-Docombor 1935 65.14 46.90 72 -6-

To.b1o 5.- Aggrogo.to So.1e Price of Fo.rms Foreclosed in Various Periods Expressed As a Perccnto.go of Judgment o.nd Vo.luo.tion

So.1e Price o.s a Porcontn.go of: Period Judrecnt Vo.1un.t~on

July-Doc omb\Olr 1933 67.9 75.4 Jo.nuctry-Juno 1934 72.4 79.9 July-Decomb0r 1934 71.6 79.9 Jo.nuo.ry-,June 1935 76.0 83.3 July-Doc G'Til.b ur 1935 73.9 83.3 Jo.nuo.ry 1936 66.4 87.1 69.8 84.8

Voluntary Sales in Lieu of Foreclosure

As compo.rcd with foreclosures loss information is obtn.inn.blo rolo.tivo to tho number of fn.rms voluntarily trn.nsforrod to creditors to liquidn.to mortgage Jobt; but thn.t which is o.vailable is of some significance. Data collected in three c.gr)cultura1 counties, Greeno, Putncun n.nd Union, show tho.t tho number of those vrJl1mtary transfers is diminishing in this scunplo n.roo.. During tho 11 ycr~rs 1925 ~-"' .l :~55 inclusive, a. total of 371 fanns (containing 10 acres or more) wore vol­ ,_,-_r:·c·(·i.:::, r.;)si.gnod to finn.ncio.l institutions us compar<;cl with 479 foreclosed by i- .l,.nclr, ~ institutions - indicating how importo.nt such ·i;r \J1:.;fcrs hn:vc boon in tho ;: .;; .l o stuto market. In tho throo above na...vnod counti0.s t.bJ vol,lr."co.ry transfers in . '. ;u. of foreclosure show approximately tho scuno trend as foreclosures o.nd appar­ o_:t1y can be expected to diminish at somewhere ncar tho so.me rate.

Tc.b1o 6.- Farms in Putncun, Union o.nd Groon0 Counties Voluntarily Assigned to Financial Institutions, 1925 to 1935 Inclusive

Yca.r Fo.nns Land

lirumbur Acres

1925 19 2,285 1926 19 1,695 1927 14 2,296 1928 21 3,019 1929 35 3_. 350 1930 33 3, ','46 1931 36 4,065 1932 71 8,57<:1: 1933 62 6,740 1934 34 2,949 Jo.nuary-Junc 1935 15 1,907 July-December 1935 12 1,052 -7-

Tccbl o 7.- For eel osures on Fe1.rn. Ro::tl ::.:st::.. to Na.do by Fina.ncia.l Institutions in Putna.m, Union a.nd Groene Counties, 1925 to 1935 Inplusivo

Foro- Amount Juctgmont .Amotmt for Yoetr closures of land a.gn.inst which prop- roporty crt sold Numb or Acres Dollars Do. a.rs

1925 24 2,665 198,410 169,681 1926 23 2,403 167,936 136~ 591 1927 30 3,090 193,576 18512.21 1928 42 5,165 368,364 269,057 1929 33 3,437 2l3,473 160 .. 088 1930 32 3, 746 194,115 139!.888, 1931 69 8,929 550,171 378:,645 1932 83 8,044 217,275 149,925 1933 56 5,t325 349,127 271,638 1934 54 5,565 357,756 288,179 J C\.nW'.ry-Juno 1935 21 2,235 118:,538 105~497 Ju1y-Docomb~·r 1935 12 1,025 54,263 58,946

·'-,.b1e 8,- Rurn.1 Roct1 Estate Ta.xes in Ohio, Selected YorLrs, 1875 to 1935

('r:.:.xos duo for collection in ]:_~i:~ .:" .. ~:! ~'------Index Yen.j." Index

1875 70 1920 164 1880 69 1921 188 1885 61 1922 209 1890 63 1923 211 1895 59 1924 208 1900 64 1925 220 1905 69 1926 222 1910 86 1927 235 1911 84 1928 250 1912 88 1929 245 1913 90 1930 242 1914 100 1931 228 1915 98 1932 188 1916 132 1933 173 1917 127 1934 152 1918 129 1935 120* 1919 137

* 2-ubject to revision. -8-

Real Esta.te Taxes

Tho po.st 60 yoo.rs cover a period of groat cha.ngos in the volume o.nd no.turo of public service and in the consequent expense. An index of ruro.~ real csto.to to.xos is given in Table 8 which shows tho rclo.ti vo size of tho tax bill duo for collection in va.rious yca.rs since 1875. During this period of 60 years tho a.nnua.l ta.x expense o..ssocia.tod 1vith rural roal estate has gone through two cycles of chango. After tho Civil Wa.r a decline sot in ·which roached a. lo~ point of 54 in 1882 o.ftor which ta.xos continued levY until about 1900. Then a. stoctdy a.dvancc "boga.n until 1828, when tho index stood at 2 50, a.ftcr which a.nothor do .. clino started which has continued up to 1955 with a. decline to 120.

Tho high roa.l osta.to taxes prior to tho recent decline co.n be O:sso­ cia.tcd for tho most pa.rt with the financing of highvm.ys and schools either by direct ta.x levies or by tho issua.nco of bonds which cvcntunlly were to be retired by property taxation. Since a larger share of these services arc now financed by other typos of ta.xation, since a progra.m of rigid economy has boon a.doptod by loca.l gov:;rmnonts, and since tho outstanding public debt in most rura.l aroo.s is on the doclino, a fair assur~1cc exists t~~t roa.l ostn.to taxes will not in tho ncar future got badly out of line vvith income from land. It is well to point out thD.t the recently a.doptcd ta.x rate limitation is not ncccs ... so.rily insura.ncc against high taxes for a. simila.r limitation adopted in 1910 proved to bo ineffective against tho insistent do~~nd for public service. Substitute tuxes offer a more a.doqua.tc source of relief.