Monday, 21 April 2008

AsuntoKupla 2 : Land Price Overheating

"The rising price of food has led to an increase in arable land prices in Finland. For example in the region of Pirkanmaa, prices for farmland are around 10 percent higher than they were last year."
"Prices have reached as high as 15,000 euros for a hectare of land."
"More people are investing in land because they believe the price of wheat will remain high. Meanwhile, Agrifood Research Finland (MTT) says it's seen signs of an overheated market."

Wheat is expensive: because the supply is low and the demand high. High Wheat price push investors to increases the production of wheat and the allocation of arable lands. The supply increases dramatically thus leading to an oversupply and pushes price lower: Wheat become cheap.

That's the typical story of boom and bust applied to wheat... This could be applied to the housing market since the supply is already starting to be greater than the demand. In the case of agriculture, the weather is an important element that can make the supply volatile. In the case of housing, it's the economy, bank loan supply, credit standard and unemployment.
All in all , any asset price soon or later comes back to its equilibrium state. The question to ask would be what is the fundamental price? and how long it will take to reach it?

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