http://recenter.tamu.edu/pdf/1848.pdf

Little Pieces, Big Prices

T
exas land prices have spiraled upward to spectacular

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 199798 (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.