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This year has not been so great for the rural large lot business. Katrina and high gas prices were hard on our prospects. Interest rates did not rise all that much, but there was a lot of talk about rising rates and tougher terms. So, people became a little discouraged this year in thinking about a longer commute if they lived further from their job.


Also it has been a long time good market for land and for loans, with an almost uninterrupted fall in interest rates since the interest rate bubble of 1982. So, it seems like the boom in rural construction may have run out of prospects in 2005.


But, there are signs that the market may have a bounce in it for 2006. We had a big sales week ending December 18 just before Christmas. And after Christmas we received some calls and contracts we were not expecting. The good weather may have been a factor. Also there has been a decline in lot values, we think, even though land prices are still strong.


There are some factors that may be positive for 2006. For one, the price of gas has peaked out and dropped a little. And our customers have made adjustments in what they drive, and they are getting used to a higher range of gas prices. Also there is evidence that interest rates may not go up much further, if at all. The ten year government bond has recently dropped to a yield below that of a two year note. This is unusual, and it could indicate that the market expects a reduction in the growth rate. This may mean real estate interest rates will remain low.


The increasing real estate taxes for suburban schools in toney neighborhoods will likely have a positive effect on rural lots, as prospects wish to lower their tax expenses and increase the amount of land they have as an investment as well as a building site.


There are some more trends that could help the real estate business. There has been a load of talk lately about the common interest in hunting lands, and the private timber owners interest in selling timberland to investors and those wanting to build in the woods.


The increasing advantages of IRAs and 401(k)s with both self directed and Roth features may be a rising stimulus to private real estate investment. The old section 1031 tax free exchanges continue to push land values by folks interested in tax free investments.


We have noticed that banks are getting pressure from regulators on relatively risky real estate loans. But any retreat by banks in real estate loans are likely to be offset in our business by seller financing, Farm Credit Service financing, and various other forms of lending.



There has been a glut of lots for sale in some rural markets in 2005, but a strong 2006 demand will likely soak up the inventory fairly quickly. The increasing regulation of rural "splits" and subdivisions could by the end of 2006 lead to a shortage of rural lots and an increase in lot values.