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