Hot Property
Recreational Demand Drives Land Market
by Charles E. Gilliland and Michael Mays

Land for recreational purposes continued to be in hot demand, driving the market. Responding to rapidly rising prices, buyers looked beyond lands adjacent to metropolitan areas and into lower-priced markets farther away.

Throughout the state, buyers continued to snap up good quality properties, resulting in a dearth of listings in many areas. Buyers began searching out properties not on the market and making above-market-price offers.

Size Matters

The weighted median price per acre, an amount that corresponds to a mythical acre of land reflecting all regions of the state, rose 2 percent from $942 to $961 from 2001 to 2002 (see Figure 1). That small increase reflects a marked increase in the median size of properties moving in the market, from 101 acres in 2001 to 107 acres in 2002. Larger tracts typically fetch lower per-acre prices than smaller tracts.

Analysis of Texas land prices shows that the market for the typical-sized Texas land parcel has slowed (see Figure 2). However, markets for large and small tracts have continued to prosper.

The weighted median price of small properties increased by 10 percent in 2002, rising from $1,317 per acre to $1,448 per acre. Sales in this category averaged 50 acres. Large properties climbed from $590 to $676 per acre, an increase of 14 percent for the market segment. Large properties were 403 acres on average.

The typical-sized property market segment averaged 152 acres and posted a 3 percent decline in weighted median price from $897 per acre to $871 per acre. This is the first decline seen in any of these market segments since 1991, perhaps signaling cooling demand that could spread to other segments in 2003 or 2004.

Location Counts

Regional analysis of sales reported to the Center indicate a picture of generally strong markets throughout Texas with price increases in six of the eight land market areas (LMAs) that registered regionwide trends (see Figure 3). Increases occurred in the Panhandle-North (LMA 1), Rolling Plains-North (LMA 6), Edwards Plateau-West (LMA 9), Hill Country-North (LMA 14), Hill Country-West (LMA 15) and San Antonio (LMA 18) land markets.

Market observers on the Center's land market panel offer the following insights:

• The 54 percent price increase in LMA 1 indicates a superheated market in that area

• Price increases in the LMA1 region were prompted by short supply of desirable land for recreational buyers

• Some buyers in LMA 1 have been motivated by speculation for water rights

• Quail hunting is an important motivation for recreational buyers in LMAs 1 and 6

• Short supply and high demand for ranch land contributed to price increases in LMA 9

• Bargain hunters are resisting high-priced land in the Kerrville and Fredericksburg regions, trading increased travel time for cheaper prices in LMAs 14 and 15, driving up prices in those regions

In the Rolling Plains-Central (LMA 7) and North Central Plains (LMA 12) areas, prices appeared to weaken from 2001 levels. Market observers saw active markets in these areas in 2002, however, and indicated that a significant increase in the numbers of large properties moving in the markets contributed to the lower per-acre price.

The remaining LMAs did not register regionwide trends in 2002. Many areas saw prices remain steady or increase. On balance, 2002 was a solid year for land markets with some buyers choosing to buy in second-tier markets to purchase more acreage.

Hunting remained an important motive for land purchases, along with nonhunting recreation, 1031 exchanges, homebuilding and preserving wealth. Fewer observers reported buyers interested in agricultural production than in past years. Most observers noted that estate settlement, retirement or taking a capital gain were important reasons sellers parted with land.

Coming Attractions

Anecdotal reports this spring suggest that market activity may be marginally slowing in some areas, prompting concern among some observers. The economic climate in Texas is not helping. Government contributed most of the job growth in Texas in the past year, but prospects of further support from that sector are dim. Political uncertainty lingers as the nation wages a continuing war on terrorism. All these factors cause concern about future land markets.

Offsetting these influences, inflation-adjusted Texas land prices remain at levels comparable to 1973 or 1986-87. These prices seem modest considering the population growth and development that has taken place since that time.

Further, those who are averse to risk frequently seek out tangible assets, like land, to preserve their wealth in uncertain times. Texas land markets should remain strong statewide in 2003 with prices holding steady or increasing.

Dr. Gilliland is a research economist and Mays a former graduate research assistant with the Real Estate Center at Texas AandM University.