Is Farm Real Estate The Next Bubble?
Brett C. Olsen & Jeffrey R. Stokes
Published online: 28 May 2014

Abstract The recent increase in farmland prices leads many to conjecture that a price
bubble exists. A dataset of Iowa farmland prices for three grades of quality over the last
60 years is examined to address the question whether the conditions for a rational
expectations bubble are evident. An abnormal component in the change in farmland
prices is found during the most recent sub-period of the sample. A novel valuation
model that measures the speculative component of farmland value as a function of cash
rents shows no speculative component is present. An additional test of the time series
characteristics of the data provides no evidence of negative duration dependence.
However, analysis of transition probabilities shows asymmetry exists most notably in
the low quality farmland data series. Finally, time irreversibility is shown to be present
at different lags for only the lowest farmland quality grade. Overall, the results imply
that the low quality grade farmland is the most likely candidate to exhibit the conditions
necessary to support a rational expectations bubble. In general, however, the data offer
weak support of a bubble in farmland prices.