Texas Land Market Accomplishes
Another Double-Digit Increase
By Colleen Schreiber
COLLEGE STATION — Land prices in Texas rose another 17 percent in 2005. The year was marked by the highest rate of growth of the median price per acre since 1973-74.
That was the message delivered by Charles Gilliland, research economist with the Real Estate Center at Texas A&M University, at the recent annual outlook for Texas land markets.
"We have an extremely active land market," Gilliland told listeners. "The thing that strikes me is that the curve is accelerating; it's not just going up, it's going up faster every year."
He noted that there has only been one other time in history since the Real Estate Center began collecting data in 1966 that the state reported back-to-back double-digit growth.
"That was in the 1973-74 time period, and it was only two years; we've now had three straight years where the median growth was greater than 10 percent; it was 13 percent in 2003, 16 percent in 2004 and 17 percent in 2005, and that growth comes with a high volume of transactions as well," he noted.
The number of transactions reported for 2005, at 7994, was off slightly from the 2004 level of 8073.
"Everyone is singing the same song, that this can't go on, that it must stop someday. The question is when will it stop?
"First quarter reports indicate it hasn't come to a halt yet. If anything, it might be accelerating even more," Gilliland told listeners.
The market, he noted, has been recreationally driven since 1993. Recreation continues to be a primary driver, but the investment sector, which really began showing up in late 2002, has really accelerated the demand, Gilliland told listeners, particularly in the last six months.
Land prices, Gilliland remarked, have gone up everywhere and the minimum price per acre is no longer $50 or $75; in 2005 it was $250 per acre. The highest percentage increase in the state for 2005 occurred in the corridor from San Antonio over to Gonzales and on to the coast. The Coastal prairie middle, up 34 percent, led the way. Close on its heels was the San Antonio area and the Coastal Prairie north, both up 32 percent.
The primary driver continues to be recreation, and Gilliland noted that 1031 exchange money was extensive in this area, a pretty good indicator, he added, that investor money is now a big part of the demand driver.
The second highest percentage price increase was in the area from Stephenville north to Wichita Falls and all along the Red River to Texarkana. Prices there were up 21 to 30 percent.
"Land around Wichita Falls had really not caught fire until this year," Gilliland told listeners, "but it now seems to be in the fast catch-up mode.
"It's a story of buyers looking for land that is a little cheaper. I'm told that it's an influx of buyers from Florida and a lot of Dallas-Fort Worth buyers are also driving that market. There's also a lot of 1031 money reportedly showing up in these areas as well."
Some of the metro areas, including DFW, Waco, Austin, and College Station, reported price increases of 16 to 22 percent. This area, Gilliland told listeners, is primarily being driven by development demand, but recreation and 1031 are also factors.
There were some anomalies in 2005. Two areas were up, he noted, but the increase was not significant.
"Those areas had a heck of a run the year before, and they basically just had to catch their breath," he explained.
The Canadian breaks and Panhandle North, for example, last year were up 41 and 37 percent, respectively. This year prices were up but again, he said the increase was not statistically significant. Gilliland reported sales in this area consisted of much larger properties.
A similar situation occurred this year in the Highland Lakes area, Gilliland commented. Last year prices there were up 26 percent; this year prices were reportedly off a statistically insignificant two percent with prices ranging from $3352 to $3488 per acre. He noted that there were more sales in the outlying area and that sales in those counties consisted of larger tracts.
The median price in the Fredericksburg area, Gilliland told listeners, was down a bit this year as well, but he attributed that to the fact that there were more sales in the Mason and Llano areas.
"Those areas tend to be a little cheaper than the land in Gillespie County," he commented. "That decrease is definitely not an indicator of a trend towards cheaper prices."
Permian Basin and west was off seven percent in 2005, but again that change was not significant.
"All I can blame that on is dairy cows," Gilliland opined. "In 2004 we were told that there was lots of 1031 exchange money coming in from out of state buying dairy operations and paying some premium prices."
The median size tract in this area, however, was up 30 percent.
"I'm told those same dairies are now trying to buy places to raise feed, but they're not paying the same kind of premium prices that they were for the dairies."
The real estate center has been tracking rural land values across the state since 1966. In terms of the statewide median, the Kerrville area, Gilliland told listeners, is the all-time leading champ. This area started breaking away from the rest of the pack in the 1990s. Today the area has the highest median price ever seen anywhere in any land market area in Texas at almost $5800 an acre.
"And it's going straight up off the chart," Gilliland added.
The Austin area, which comes in second, he said, is "a little tamer," but it, too, is accelerating rapidly. He noted that there are more sales in that area.
In 1966, the South Plains area, encompassing Lubbock north to Plainview, had the highest price land, but it appears that little has happened since. There has been some improvement, but the improvement has not been as dramatic.
"If there is an area in Texas that is strongly influenced by agricultural activity, I would expect that to be one of the areas," Gilliland pointed out.
Being that investor money is a large part of what is driving the current market, the economist looked at returns on land investments over the last couple of years.
"If someone bought land in 2002 and sold it in 2005, the compounded annual percentage return is 10 percent over inflation," Gilliland told listeners. "What other investment can you think of that has been doing that for the past three years? That's why the investment money that has been coming into this market is flooding in now."
A five year investment reported returns just under 10 percent and the 10 year investment is well above five percent compounded return over and above inflation.
"I was speaking to a guy who manages a large fund a couple of weeks back, and they're investing in quite a bit of real estate, specifically quite a bit of Texas real estate," Gilliland said. "They've about decided that the opportunities on both coasts have been exhausted, and Texas looks cheap in comparison.
"I think we better get ready for a big wave of cash coming from both coasts into the Texas real estate markets. This next year might be real interesting. We thought a 17 percent increase was unbelievable. It might be entertaining a year from now to see what actually occurs if indeed that happens."
Gilliland shifted gears and talked more about what might possibly be expected in the future in terms of land values. To do that, he looked at long-term trends and whether prices today are above or below the average trend line.
Today land prices are quite a bit above the Center's 40-year trend line. USDA numbers, based on a 55-year trend line, however, indicate that today's land prices are well below the trend.
For 2006, Gilliland projected that the median price will likely rise another 10 percent or so from an average $1490 per acre to $1640. By 2011 their models suggest that the state could be looking at a median price per acre of $2267, which is a 52 percent increase.
He touched on a couple of other key issues that could have an impact on land prices in the future. One group of people that is already having an impact is the baby boomers. He referred to a recent article in Business Week, "The Hills Are Alive," which talked about all the retirees flocking to the Texas hill country.
The top one percent of wealth holders in 1995 were worth $2.4 million, Gilliland said, and 77.3 percent of them were 45 years of age or older. By 2001 the top 20 percent of the boomers held nearly 80 percent of the nation's net worth. Their median net worth was $597,900.
"There are some of those baby boomers that have access to a lot of resources," he noted. "They're different than their parents in that they have better health, and they're willing to spend money and they do. They value adventure. So it seems to me that those guys will be out there with money in hand and they'll be looking for that ranch on the river or something out of the ordinary. And there's an ever-increasing population of them," he reminded.
Gilliland also commented about the number of Californians and Floridians who continue to pour their investments into the Texas land market.
"There is a subdivision at Comfort, and a majority of them of them are from California. I have a friend who owns a shop in Fredericksburg, and those Californians come into the shop and they comment on how cheap his prices are."
Energy prices, he commented, could pose problems for some, but the optimistic side of that equation is that royalty owners are starting to make real money again and some are beginning to dump some of that money back into land.
Finally, Gilliland told realtors and appraisers that the old market indicators may not be quite as good in this rapidly rising investor-driven market.
"The Texas countryside is about to change," Gilliland said. "Everyone talks about the population from Dallas down to San Antonio, but it was pointed out to me that there is no geographical reason why Houston can't spread all along 1-10 to San Antonio.
"I personally think East Texas is in for a dramatic change too, particularly when the big holders there begin to divide.
"Everyone says we should get ready for a lot of people to come to Texas; I don't know if that's good, but it's a reality," he concluded.
Another Double-Digit Increase
By Colleen Schreiber
COLLEGE STATION — Land prices in Texas rose another 17 percent in 2005. The year was marked by the highest rate of growth of the median price per acre since 1973-74.
That was the message delivered by Charles Gilliland, research economist with the Real Estate Center at Texas A&M University, at the recent annual outlook for Texas land markets.
"We have an extremely active land market," Gilliland told listeners. "The thing that strikes me is that the curve is accelerating; it's not just going up, it's going up faster every year."
He noted that there has only been one other time in history since the Real Estate Center began collecting data in 1966 that the state reported back-to-back double-digit growth.
"That was in the 1973-74 time period, and it was only two years; we've now had three straight years where the median growth was greater than 10 percent; it was 13 percent in 2003, 16 percent in 2004 and 17 percent in 2005, and that growth comes with a high volume of transactions as well," he noted.
The number of transactions reported for 2005, at 7994, was off slightly from the 2004 level of 8073.
"Everyone is singing the same song, that this can't go on, that it must stop someday. The question is when will it stop?
"First quarter reports indicate it hasn't come to a halt yet. If anything, it might be accelerating even more," Gilliland told listeners.
The market, he noted, has been recreationally driven since 1993. Recreation continues to be a primary driver, but the investment sector, which really began showing up in late 2002, has really accelerated the demand, Gilliland told listeners, particularly in the last six months.
Land prices, Gilliland remarked, have gone up everywhere and the minimum price per acre is no longer $50 or $75; in 2005 it was $250 per acre. The highest percentage increase in the state for 2005 occurred in the corridor from San Antonio over to Gonzales and on to the coast. The Coastal prairie middle, up 34 percent, led the way. Close on its heels was the San Antonio area and the Coastal Prairie north, both up 32 percent.
The primary driver continues to be recreation, and Gilliland noted that 1031 exchange money was extensive in this area, a pretty good indicator, he added, that investor money is now a big part of the demand driver.
The second highest percentage price increase was in the area from Stephenville north to Wichita Falls and all along the Red River to Texarkana. Prices there were up 21 to 30 percent.
"Land around Wichita Falls had really not caught fire until this year," Gilliland told listeners, "but it now seems to be in the fast catch-up mode.
"It's a story of buyers looking for land that is a little cheaper. I'm told that it's an influx of buyers from Florida and a lot of Dallas-Fort Worth buyers are also driving that market. There's also a lot of 1031 money reportedly showing up in these areas as well."
Some of the metro areas, including DFW, Waco, Austin, and College Station, reported price increases of 16 to 22 percent. This area, Gilliland told listeners, is primarily being driven by development demand, but recreation and 1031 are also factors.
There were some anomalies in 2005. Two areas were up, he noted, but the increase was not significant.
"Those areas had a heck of a run the year before, and they basically just had to catch their breath," he explained.
The Canadian breaks and Panhandle North, for example, last year were up 41 and 37 percent, respectively. This year prices were up but again, he said the increase was not statistically significant. Gilliland reported sales in this area consisted of much larger properties.
A similar situation occurred this year in the Highland Lakes area, Gilliland commented. Last year prices there were up 26 percent; this year prices were reportedly off a statistically insignificant two percent with prices ranging from $3352 to $3488 per acre. He noted that there were more sales in the outlying area and that sales in those counties consisted of larger tracts.
The median price in the Fredericksburg area, Gilliland told listeners, was down a bit this year as well, but he attributed that to the fact that there were more sales in the Mason and Llano areas.
"Those areas tend to be a little cheaper than the land in Gillespie County," he commented. "That decrease is definitely not an indicator of a trend towards cheaper prices."
Permian Basin and west was off seven percent in 2005, but again that change was not significant.
"All I can blame that on is dairy cows," Gilliland opined. "In 2004 we were told that there was lots of 1031 exchange money coming in from out of state buying dairy operations and paying some premium prices."
The median size tract in this area, however, was up 30 percent.
"I'm told those same dairies are now trying to buy places to raise feed, but they're not paying the same kind of premium prices that they were for the dairies."
The real estate center has been tracking rural land values across the state since 1966. In terms of the statewide median, the Kerrville area, Gilliland told listeners, is the all-time leading champ. This area started breaking away from the rest of the pack in the 1990s. Today the area has the highest median price ever seen anywhere in any land market area in Texas at almost $5800 an acre.
"And it's going straight up off the chart," Gilliland added.
The Austin area, which comes in second, he said, is "a little tamer," but it, too, is accelerating rapidly. He noted that there are more sales in that area.
In 1966, the South Plains area, encompassing Lubbock north to Plainview, had the highest price land, but it appears that little has happened since. There has been some improvement, but the improvement has not been as dramatic.
"If there is an area in Texas that is strongly influenced by agricultural activity, I would expect that to be one of the areas," Gilliland pointed out.
Being that investor money is a large part of what is driving the current market, the economist looked at returns on land investments over the last couple of years.
"If someone bought land in 2002 and sold it in 2005, the compounded annual percentage return is 10 percent over inflation," Gilliland told listeners. "What other investment can you think of that has been doing that for the past three years? That's why the investment money that has been coming into this market is flooding in now."
A five year investment reported returns just under 10 percent and the 10 year investment is well above five percent compounded return over and above inflation.
"I was speaking to a guy who manages a large fund a couple of weeks back, and they're investing in quite a bit of real estate, specifically quite a bit of Texas real estate," Gilliland said. "They've about decided that the opportunities on both coasts have been exhausted, and Texas looks cheap in comparison.
"I think we better get ready for a big wave of cash coming from both coasts into the Texas real estate markets. This next year might be real interesting. We thought a 17 percent increase was unbelievable. It might be entertaining a year from now to see what actually occurs if indeed that happens."
Gilliland shifted gears and talked more about what might possibly be expected in the future in terms of land values. To do that, he looked at long-term trends and whether prices today are above or below the average trend line.
Today land prices are quite a bit above the Center's 40-year trend line. USDA numbers, based on a 55-year trend line, however, indicate that today's land prices are well below the trend.
For 2006, Gilliland projected that the median price will likely rise another 10 percent or so from an average $1490 per acre to $1640. By 2011 their models suggest that the state could be looking at a median price per acre of $2267, which is a 52 percent increase.
He touched on a couple of other key issues that could have an impact on land prices in the future. One group of people that is already having an impact is the baby boomers. He referred to a recent article in Business Week, "The Hills Are Alive," which talked about all the retirees flocking to the Texas hill country.
The top one percent of wealth holders in 1995 were worth $2.4 million, Gilliland said, and 77.3 percent of them were 45 years of age or older. By 2001 the top 20 percent of the boomers held nearly 80 percent of the nation's net worth. Their median net worth was $597,900.
"There are some of those baby boomers that have access to a lot of resources," he noted. "They're different than their parents in that they have better health, and they're willing to spend money and they do. They value adventure. So it seems to me that those guys will be out there with money in hand and they'll be looking for that ranch on the river or something out of the ordinary. And there's an ever-increasing population of them," he reminded.
Gilliland also commented about the number of Californians and Floridians who continue to pour their investments into the Texas land market.
"There is a subdivision at Comfort, and a majority of them of them are from California. I have a friend who owns a shop in Fredericksburg, and those Californians come into the shop and they comment on how cheap his prices are."
Energy prices, he commented, could pose problems for some, but the optimistic side of that equation is that royalty owners are starting to make real money again and some are beginning to dump some of that money back into land.
Finally, Gilliland told realtors and appraisers that the old market indicators may not be quite as good in this rapidly rising investor-driven market.
"The Texas countryside is about to change," Gilliland said. "Everyone talks about the population from Dallas down to San Antonio, but it was pointed out to me that there is no geographical reason why Houston can't spread all along 1-10 to San Antonio.
"I personally think East Texas is in for a dramatic change too, particularly when the big holders there begin to divide.
"Everyone says we should get ready for a lot of people to come to Texas; I don't know if that's good, but it's a reality," he concluded.
