http://recenter.tamu.edu/pdf/1851.pdf

LF 2007

Charles E. Gilliland

Research Economist

Nirad Pachchigar

Research Assistant

Texas Land Market

Developments – First Half 2007

Texas A&M University

February 2008

© 2008, Real Estate Center. All rights reserved.

1

Texas Land Market

Developments – First Half 2007

Summary of Texas Land Market

Developments – First Half 2007

Volume of sales faltered in the first half of 2007, falling to

3,769 sales compared with 5,452 2006 first half sales, a

31 percent drop.

Prices rose 15 percent, from $1,811 per acre in 2006 to

$2,076 per acre in 2007, continuing the rapid price appreciation

trend since 2004.

Size of properties dropped to a new low of 82 acres in

2007.

Prices rose strongly throughout the state.

The 2007 market saw growing interest in land as an

investment.

Some investors appear to perceive inflation in the future.

Some observers see a noticeable increase in the number

of buyers who immediately offer the property for resale at

a higher price.

The market continues to see a dearth of quality properties

for sale, contributing to the slowdown in sales volume.

Although observers express concern about emerging

caution among buyers prompted by the rate of price increases,

the second half of 2007 should produce another

sizable gain in prices.

Although use of leverage rose in 2007, the market still

involves substantial percentages of cash.

Prices Up, Volume Down

Texas land prices have spiraled to ever-higher

levels in the past five years, leading many

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 top-quality properties.

While the first-half 2007 land market does not

reflect such a shift to quality-driven sales, evidence

suggests that the long-anticipated cooling of the

market may have begun. Specifically, the number

of reported sales in the first half of 2007 confirms a

widely perceived slowdown in transaction volume in

Texas rural land markets.

While more first half sales remain to be reported,

the 2007 first-half volume of 3,769 sales dropped

31 percent below the 2006 first half volume of

5,452 (Figure 1). The 2007 level of activity roughly

corresponds with the volume registered in 2002 land

markets.

At 15 percent, the growth in sale price slowed 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. The 2006 first-half price was $1,811 per

acre. Despite the deceleration in price growth, the 15 percent

increase nearly matches the 16 percent growth over the entire

year in the 2003 and 2004 markets.

While indicating the noticeable slowdown in sales volume

early in the year, market participants and observers noted

increasing interest in late summer and do not see potential

buyers abandoning the market. Two forces are contributing to

the slackening in activity.

First, potential buyers are still searching for land, but

continue to face shortages of quality properties for sale

throughout the state. Second, potential sellers have begun

to factor anticipated price growth into asking prices. The

resulting jump in asking prices has startled some buyers and

caused them to delay buying in hope of finding more desirable

properties for the price.

The real or inflation-adjusted price of $407 per acre in

1966 dollars pushed past the the $400 mark for the first time.

Nominal prices (Figure 1 and Table 1) reflect the actual prices

paid while real prices represent those nominal prices adjusted

for inflation. The real price change indicates that prices, in

terms of purchasing power, rose 12 percent above inflation in

the first half of 2007 compared with the same period in 2006.

At 82 acres, the typical transaction set a new low, indicating

a prevalence of small properties in the 2007 market. Tract size

1966 1974 1982 1990 1998 2006

8,500

7,500

6,500

5,500

4,500

3,500

2,500

Number

of Sales

Source: Real Estate Center at Texas A&M University

Figure 1. Texas Land Market Volume

First Half 2007

2

LMAs 29, 30 and 31 — East Texas markets have not

seen immediate flipping of deals, but some buyers

from 2004 and 2005 are now reselling at 25 to 35

percent profits. This market is largely cash-driven.

Bucking the trend elsewhere, LMAs 29 and 31 both

saw sales volume increase markedly in early 2007.

LMAs 12, 22 and 23 — These North Texas areas

registered regionwide increases with the Wichita

Falls and Fort Worth areas posting strongly higher

prices. Barnett shale activity continues to support

land-buying activity.

LMAs 25 and 27 — The Brazos River regions posted

increases of 20 and 19 percent in the first half of

2007. The market is awash in cash, with few large

properties for sale.

has dropped substantially under the 140 acre levels

posted in 1997–98 (Figure 3).

Price Distribution

In 2007, the geographic distribution of land prices

(Figure 4) continued to reflect both population

density and the draw of scenic amenities, with the

highest-priced land surrounding metropolitan areas

and stretching through the Hill Country. West Texas

continued to post the lowest land prices.

Figure 5 shows regional percentage changes in

prices per acre from the first half of 2006 to the first

half of 2007. 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 off from

2006 markets.

The supply of land for sale remains tight and demand

remains healthy. Some markets in South Texas appear poised

to take a breather from the rapid escalation of prices in recent

years as some sellers have reduced asking prices.

Regional Developments

The following land market areas (LMA) registered especially

strong (statistically significant) trends compared with 2005

market levels. All regions experienced price increases in 2006.

The local developments reflected a voracious appetite for land

encountering a limited supply of listings. The following analysis

notes some of the forces driving those trends. Table 2 contains

detailed statistics documenting regional developments.

LMAs 19, 20 and 21 — Buyers discovered relatively lower

prices prevailing in these Coastal Bend regions in the first

half of 2007. Their quest for land drove prices higher with

percentage increases ranging from 28 to 42 percent. Although

there is still a lot of cash in the market, borrowing is becoming

more prevalent. Lenders report an increased demand for loans,

including from borrowers with substantial amounts of existing

debt.

1966 1974 1982 1990 1998 2006

160

150

140

130

120

110

100

90

80

70

60

50

Acres

Source: Real Estate Center at Texas A&M University

Figure 3. Texas Typical Tract Size

1966 1974 1982 1990 1998 2006

2,200

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

Dollars

Per Acres

Source: Real Estate Center at Texas A&M University

Figure 2. Texas Rural Land Prices

Real or Deflated

Nominal

LMAs 4, 6, 7, 8 and 9 — These West Texas regions saw median

prices rise 15 to 25 percent above comparable 2006 levels.

Brokers report struggling to find good properties to sell. The

volume of calls has increased and asking prices are about 30

percent higher than recent sale prices. This has made some

buyers hesitant, but sellers are standing firm.

LMAs 10 and 11 — In the Edwards Plateau–South and Rio

Grande Plains, the volume of transactions is substantially

down while use of leverage is up. Asking prices, which are

higher than last year, are no longer firm and price resistance is

evident. However, first-half 2007 prices rose 11 to 22 percent

above 2006 levels.

LMAs 13, 14, 15 and 16 — Prices in the periphery of the Hill

Country and the Highland Lakes surged substantially, with

increases ranging from 19 to 43 percent. Observers report an

increase in investment-motivated purchases with an attendant

increase in numbers of properties bought and immediately

reoffered for sale. Prices are strong, but more bargaining is

going on.

3

08-1851

Figure 4. Land Prices, First Half 2007

$350 – $701

$702 – $2,200

$2,201 – $3,686

more than $3,687

Price

Source: Real Estate Center at Texas A&M University

See PowerPoint slide presentation at:

http://recenter.tamu.edu/speeches/CG102407Tyler.pdf

Figure 5. Land Price Change, First Half 2007

–21% – 8%

8.1% – 20%

20.1% – 25%

Up more than 25%

Change

Source: Real Estate Center at Texas A&M University

See PowerPoint slide presentation at:

http://recenter.tamu.edu/speeches/CG102407Tyler.pdf

4

Table 1. Nominal and Real Changes in Weighted Average

Price of Texas Rural Land, 1966–2007

Nominal Real

Annual Deflated Annual

Median Weighted Compound Weighted Compound

Tract Average Year-to -Year Pretax Average Year-to -Year Pretax

Size Price per Percentage Growth Rate Price per Percentage Growth Rate

Year (acres) Acre Change from 1966 Acre* Change from 1966

1966 120 $157 **** **** $157 **** ****

1967 110 169 8 8 164 4 4.5

1968 101 181 7 7 168 2 3.4

1969 100 190 5 7 168 0 2.3

1970 107 204 7 7 172 2 2.3

1971 110 213 4 6 171 –1 1.7

1972 120 233 9 7 179 5 2.2

1973 153 304 30 10 221 23 5.0

1974 150 372 22 11 248 12 5.9

1975 126 384 3 10 234 –6 4.5

1976 128 412 7 10 238 2 4.2

1977 121 436 6 10 236 –1 3.8

1978 126 485 11 10 246 4 3.8

1979 132 544 12 10 254 3 3.8

1980 138 613 13 10 263 4 3.8

1981 124 708 15 11 278 6 3.9

1982 105 773 9 10 286 3 3.8

1983 113 796 3 10 283 –1 3.5

1984 125 842 6 10 288 2 3.4

1985 118 865 3 9 288 0 3.2

1986 113 714 –17 8 232 –19 2.0

1987 130 611 –14 7 193 –17 1.0

1988 139 574 –6 6 176 –9 0.5

1989 141 562 –2 6 166 –6 0.2

1990 135 539 –4 5 153 –8 –0.1

1991 138 508 –6 5 139 –9 –0.5

1992 145 499 –2 5 134 –4 –0.6

1993 140 503 1 4 132 –1 –0.6

1994 136 544 8 5 140 6 –0.4

1995 122 586 8 5 147 5 –0.2

1996 111 638 9 5 158 7 -0.0

1997 139 657 3 5 160 1 0.1

1998 139 723 10 5 174 9 0.3

1999 120 786 9 5 186 7 0.5

2000 117 842 7 5 195 5 0.6

2001 101 945 12 5 214 10 0.9

2002 107 974 3 5 217 1 0.9

2003 100 1,097 13 5 239 10 1.1

2004 102 1,274 16 6 270 13 1.4

2005 100 1,483 16 6 305 13 1.4

2006 99 1,825 23 6 364 19 2.1

2007 82 2,076 14 6 407 12 2.4

*In 1966 dollars

Source: Real Estate Center at Texas A&M University

5

Table 2. Trends in Texas Rural Land Markets, 2006–07

Source: Real Estate Center at Texas A&M University

Note 1: Test shows the result of a Mann-Whitney test of the indicated changes; (**) indicates significance at 99% level; (*) indicates significance at the 95% level;

all others showed no statistically verifiable trend

Note 2: Test data in the volume, size and price columns are rounded. Percentage calculations are based on unrounded numbers.

Land Market Area Volume of Sales Typical Size of Transaction Typical Prices

Acres per Sale Change Extremes Dollar per Acre Change Extremes

LMA Description 2006 2007 Percentage 2006 2007 Percentage TEST Minimum Maximum 2006 2007 Percentage TEST Minimum Maximum

1 Panhandle–North 65 59 –9 620 640 3 17 5,276 800 675 –16 3225 5,000

2 Panhandle–Central 163 98 –40 383 320 –16 * 10 4,160 560 589 5 211 19,319

3 South Plains 189 79 –58 194 196 1 11 6,400 585 650 11 119 6,250

4 Permian–West 231 117 –49 316 260 –18 15 31,076 578 700 21 ** 235 5,033

5 Canadian Breaks 24 24 0 640 482 –25 69 2,457 451 442 –2 148 1,278

6 Rolling Plains–North 123 86 –30 359 234 –35 ** 20 2,726 563 701 25 ** 199 5,400

7 Rolling Plains–Central 164 131 –20 206 162 –22 12 1,241 650 899 38 ** 199 11,505

8 Trans-Pecos 33 17 –48 195 320 65 12 32,882 288 350 22 * 188 8,710

9 Edwards Plateau–West 269 162 –40 200 186 –7 10 27,758 960 1,100 15 * 78 8,582

10 Edwards Plateau–South 134 72 –46 161 105 –35 * 10 13,399 2,284 2,797 22 ** 637 19,608

11 Rio Grande Plains 86 79 –8 370 426 15 15 6,101 1,445 1,600 11 * 445 5,285

12 North Central Plains 351 246 –30 128 160 25 10 5,781 1,150 1,433 25 ** 325 10,692

13 Crosstimbers 367 224 –39 116 102 –12 11 1,254 1,800 2,200 22 ** 750 10,825

14 Hill Country–North 196 151 –23 148 100 –32 ** 10 4,369 2,100 3,000 43 ** 562 13,430

15 Hill Country–West 95 81 –15 280 128 –54 * 11 6,249 1,756 2,400 37 * 831 22,000

16 Highland Lakes 188 171 –9 60 60 1 10 6,651 4,381 5,200 19 ** 2,300 22,560

17 Hill Country–South 111 79 –29 45 43 –4 11 4,929 7,196 7,706 7 1,055 20,055

18 San Antonio 210 173 –18 43 49 15 10 2,309 4,103 3,686 –10 467 24,000

19 Coastal Prairie–North 235 189 –20 51 45 –11 10 615 3,100 4,303 39 ** 1,200 17,196

20 Coastal Prairie–South 107 57 –47 132 74 –44 ** 12 1,157 1,750 2,477 42 ** 950 8,687

21 Coastal Prairie–Middle 98 76 –22 117 90 –24 17 4,100 1,881 2,416 28 ** 471 14,658

22 Texoma 230 208 –10 45 48 6 10 1,949 3,000 3,206 7 * 904 24,310

23 Fort Worth Prairie 282 135 –52 33 25 –24 * 10 4,446 4,801 6,667 39 ** 600 21,593

24 Dallas Prairie 157 83 –47 44 42 –5 10 964 5,460 4,317 –21 850 25,000

25 Blacklands–North 340 281 –17 100 52 –48 ** 10 2,000 2,303 2,770 20 ** 599 18,909

26 Blacklands–South 352 196 –44 50 40 –21 ** 10 1,506 4,000 4,476 12 984 21,946

27 Brazos 165 115 –30 50 40 –19 10 455 3,890 4,624 19 ** 975 24,840

28 Houston 282 160 –43 30 38 24 10 1,936 6,006 6,485 8 949 23,636

29 North East 72 113 57 89 59 –33 * 10 1,678 1,413 1,505 7 * 482 7,605

30 Piney Woods–North 72 31 –57 112 69 –38 * 10 2,714 2,180 2,625 20 * 1,398 4,500

31 Piney Woods–South 23 39 70 94 55 –41 20 2,013 1,791 2,213 24 * 769 5,200

32 Lower Rio Grande Valley 37 36 –3 33 32 –3 10 818 5,500 5,164 –6 1,316 20,899

33 El Paso 1 1 0 145 12 –92 – 12 12 10,791 10,852 1 – 10,852 10,852

Texas 5,452 3,769 –31 102 82 –19 ** 10 32,882 1,811 2,076 15 ** 78 25,000

6

Source: Real Estate Center at Texas A&M University

1 Panhandle–North 12 North Central Plains 23 Fort Worth Prairie

2 Panhandle–Central 13 Crosstimbers 24 Dallas Prairie

3 South Plains 14 Hill Country–North 25 Blacklands–North

4 Permian–West 15 Hill Country–West 26 Blacklands–South

5 Canadian Breaks 16 Highland Lakes 27 Brazos

6 Rolling Plains–North 17 Hill Country–South 28 Houston

7 Rolling Plains–Central 18 San Antonio 29 Northeast

8 Trans-Pecos 19 Coastal Prairie–North 30 Piney Woods–North

9 Edwards Plateau–West 20 Coastal Prairie–South 31 Piney Woods–South

10 Edwards Plateau–South 21 Coastal Prairie–Middle 32 Lower Rio Grande Valley

11 Rio Grande Plains 22 Texoma 33 El Paso

Texas Land Market Areas

7

Land Market Area 1

Dallam

Hansford

Hartley

Moore

Ochiltree

Sherman

Land Market Area 2

Armstrong

Briscoe

Carson

Castro

Deaf Smith

Gray

Parmer

Randall

Swisher

Land Market Area 3

Borden

Crosby

Dawson

Floyd

Garza

Hale

Lubbock

Lynn

Land Market Area 4

Andrews

Bailey

Cochran

Ector

Gaines

Hockley

Howard

Lamb

Martin

Midland

Terry

Yoakum

Land Market Area 5

Hemphill

Hutchinson

Lipscomb

Oldham

Potter

Roberts

Land Market Area 6

Childress

Collingsworth

Cottle

Dickens

Donley

Hall

Kent

King

Motley

Stonewall

Wheeler

Land Market Area 7

Fisher

Jones

Mitchell

Nolan

Runnels

Scurry

Taylor

Land Market Area 8

Brewster

Crane

Culberson

Hudspeth

Jeff Davis

Loving

Pecos

Presidio

Reeves

Terrell

Ward

Winkler

Land Market Area 9

Coke

Concho

Crockett

Edwards

Glasscock

Irion

Kinney

Reagan

Schleicher

Sterling

Sutton

Tom Green

Upton

Val Verde

Texas Market Areas and Counties

Land Market Area 10

Frio

Maverick

Medina

Uvalde

Zavala

Land Market Area 11

Brooks

Dimmit

Duval

Jim Hogg

Kenedy

La Salle

McMullen

Starr

Webb

Zapata

Land Market Area 12

Archer

Baylor

Clay

Foard

Hardeman

Haskell

Jack

Knox

Shackelford

Stephens

Throckmorton

Wichita

Wilbarger

Young

Land Market Area 13

Brown

Callahan

Coleman

Comanche

Eastland

Erath

Land Market Area 14

Hamilton

McCulloch

Mills

Lampasas

San Saba

Land Market Area 15

Kimble

Menard

Real

8

Land Market Area 16

Burnet

Gillespie

Llano

Mason

Land Market Area 17

Bandera

Blanco

Kendall

Kerr

Land Market Area 18

Atascosa

Bexar

Comal

Guadalupe

Karnes

Wilson

Land Market Area 19

Colorado

DeWitt

Fayette

Gonzales

Lavaca

Land Market Area 20

Aransas

Bee

Goliad

Jim Wells

Kleberg

Live Oak

Nueces

Refugio

San Patricio

Land Market Area 21

Calhoun

Jackson

Matagorda

Victoria

Wharton

Land Market Area 22

Cooke

Fannin

Grayson

Montague

Land Market Area 23

Hood

Johnson

Palo Pinto

Parker

Somervell

Tarrant

Wise

Land Market Area 24

Collin

Dallas

Denton

Ellis

Hunt

Kaufman

Rains

Rockwall

Van Zandt

Land Market Area 25

Bell

Bosque

Coryell

Falls

Freestone

Hill

Limestone

McLennan

Navarro

Land Market Area 26

Bastrop

Caldwell

Hays

Lee

Milam

Travis

Williamson

Land Market Area 27

Brazos

Burleson

Grimes

Leon

Madison

Robertson

Washington

Land Market Area 28

Austin

Brazoria

Chambers

Fort Bend

Galveston

Hardin

Harris

Jefferson

Liberty

Montgomery

Orange

San Jacinto

Walker

Waller

Land Market Area 29

Bowie

Camp

Cass

Delta

Franklin

Hopkins

Lamar

Marion

Morris

Red River

Titus

Upshur

Wood

Land Market Area 30

Anderson

Cherokee

Gregg

Harrison

Henderson

Houston

Nacogdoches

Panola

Rusk

Shelby

Smith

Land Market Area 31

Angelina

Jasper

Newton

Polk

Sabine

San Augustine

Trinity

Tyler

Land Market Area 32

Cameron

Hidalgo

Willacy

Land Market Area 33

El Paso

9

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Abilene

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Houston

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Lufkin

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Austin

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Lubbock

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Denton

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El Paso

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San Antonio

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Conroe