Though it is difficult to spot where the next big market bubbles will take place Yale economist Robert Shiller has taken a stab at it and has a hunch the next bubble will be in farmland.
Shiller describes farmland as a “dark horse” bubble candidate, not only because of the the recent boom in land prices in the U.S. and UK, but because the environment is similar to the 1970s in the U.S. when a food price scare sparked the last farmland bubble.
From Robert Shiller for Project Syndicate:
But, farmland, at least in certain places, seems to have the most contagious “new era” story right now. It was recently booming, up 64% in real terms in the U.S. in the decade ending with its price peak, in 2008. And the highly contagious global-warming story paints a scenario of food shortages and shifts in land values in different parts of the world, which might boost investor interest further.
Moreover, people nowadays easily imagine that the housing and farmland markets always move together, because prices in both boomed in recent memory, in the early 2000’s. But, from 1911 to 2010 in the U.S., the correlation between annual real growth of prices for homes and farmland was only 5%, and the largest data on farm prices have not shown anything like the decline in home prices. By 2010, real farm prices in the U.S. had fallen only 5% from their 2008 peak, compared to the 37% decline in real home prices since their peak in 2006.
Shiller also believes a bubble may be forming in commodities, driven both by weather conditions and changes in demand. He doesn’t see bubbles in either stocks or housing happening anytime soon.