|
http://recenter.tamu.edu/pdf/1848.pdf levels in the past
five years, leading observers to ponder the
future of a market trading at unprecedented levels. In burgeoning
markets, buyers often scramble to grab anything offered
for sale. But when uncertainty surfaces, buyers tend to
become more cautious, focusing on topquality properties. Land market
figures for the first half of 2007 do not reflect such a
shift to quality-driven, selective sales. However, emerging
trends suggest that the longanticipated market cooling may
have begun. Specifically, the number of
reported sales in first half 2007 confirms a slowdown in the
volume of transactions in Texas rural land markets.
While more first-half sales data volume will undoubtedly
be revised upward, the 2007 first-half volume of 3,769
sales dropped 31 percent from the 2006 first-half volume
of 5,452 sales (Figure 1). The 2007 level of activity
roughly corresponds with the volume registered in 2002 land
markets. Prices Slowing
But Growing Sales price growth
rose by 15 percent, slowing from the stratospheric
23 percent posted in 2005 (Figure 2). The 2007
first-half price was $2,075 per acre, topping $2,000 per acre
for the first time ever. The 2006 first-half price was $1,811
per acre. Despite the deceleration since 2005, the 15
percent increase nearly matches the 16 percent growth over the
entire year in 2003 and 2004. While a noticeable
slowdown in sales volume occurred early in 2007, market
participants and observers saw increasing interest later in
the summer. Two forces contributed to the slackening in
activity. First, potential buyers were still searching for land but faced
a shortage of quality properties for sale throughout the
state. Second, potential sellers were too aggressive in marking up
asking prices. The resulting jump in asking prices startled
some buyers and caused them to delay buying in hope of finding
more desirable options. The real or
inflation-adjusted price of $407 per acre in 1966 dollars pushed
past the $400 mark for the first time. Nominal prices shown in
Figure 1 reflect the actual prices paid while real prices
represent those nominal prices adjusted for inflation. The real price
change indicates that in terms of purchasing power, prices rose
12 percent above inflation in the first half of 2007
compared with the same period in 2006. At 82 acres, the
typical transaction size hit a new low, substantially below the 140-acre levels posted in 1997–98 (Figure 3). Regional Land
Market Developments In
2007, the geographic distribution of land prices continued to reflect both
population density and the draw of scenic amenities, with
the highest prices surrounding metropolitan areas and
stretching through the Hill Country. West Texas continued to post
the lowest land prices. The highest
percentage price gains were concentrated along the Gulf coast and
the periphery of the Hill Country. Activity in the Fort Worth
area also propelled prices strongly upward. Some metro areas
appeared to have cooled from 2006 markets, registering weaker
prices in some cases. Market
developments in the first half of 2007 (Figures 4 and 5) reflected an
emerging disposition among buyers to resist newly
escalated asking prices in many areas of the state. Still, the
supply of land for sale remains tight, and demand remains
healthy. The rapid escalation of South Texas prices seen
in recent years has moderated in some markets. Some
sellers have reduced asking prices. Although more
leverage is evident in some areas, cash is still
plentiful and looking for investments in the tight market.
These factors point to a further rise in already
historically high prices in the near term. Current market
dynamics suggest that the strong market run up that began
in 2003 may be maturing. Dr. Gilliland (c-gilliland@tamu.edu)
is a research economist and Pachchigar a
research assistant with the Real Estate Center at Texas A&M University. Texas land
sales are slowing somewhat, but prices are still rising. For the
first time, the per-acre price was over $2,000, reaching $2,075
for the first half of 2007. |