Charles Gilliand is the Real Estate Center’s land market expert. He has been studying land prices since the 1980s and is known throughout the state as the man to go to if you have questions about Texas land. In 2010, he was inducted into the Farm Credit Bank of Texas Hall of Honor for his “significant contributions to agriculture.” At the Center, Dr. Gilliland concentrates on research of appraisal issues, development issues, property rights, rural land markets, property taxation, water marketing, and associated issues. Despite all of the bad news we heard in 2014, none of that bad news made any difference in land prices. Corn prices were down 51 percent, cotton dropped 29 percent and oil staggered 50 percent. Rig counts in the Eagle Ford were down 49 %; in the Permian Basin they are down 54 %, and overall in the U.S. they are down 50 %. None of this seems to matter, as the response has been: who cares?
We continued to see a strong demand for recreational properties. There was a strong demand for crop land and prices went up 9 percent. Land prices are up 33 percent since 2009, and up 124 percent since 2004. In 2014, the statewide average for land was $2,364 per acre. It took us 38 years to top $1,000 per acre and only 9 years from that point to top $2,000 an acre. The average price for small tract rural land in 2014 was $5,049 per acre.
Historically, we see a strong and close co-movement between oil and land with land prices following oil prices after a one to three year lag. In other words, we might expect land prices to go down 1-3 years after oil drops. Therefore, oil prices have been the leading indicator of Texas land prices. When oil stalled in 1980, land stalled in 1985. During the years between 1985-2000 prices remained pretty stagnant.
Monthly oil prices started to decline in December 2014 and in January 2015, so a case could be made that oil prices haven’t had time to act on the land markets yet. Texas personal income in relationship to land prices may have more effect on the amount of land that changes hands as opposed to the actual price of the land. Our current economic issues include: oil prices, drought, bumper crop depress prices, rising interest rates (?), and a currency ‘struggle’.
Prices seen in rural land for 2014: In region one, large tracts were up 10%, and small ones were up 12%. Small was defined as 160 acres or smaller. Out in the Panhandle and South Plains, there was not a lot of activity. What we did see was that larger property prices went up, but there was some retreating on smaller properties. The number of 2014 transactions was similar to what we saw in 2012 and 2013. In region 3 small property prices were strong at about $2,500 an acre, while larger ones were a little bit flat.
In the northeast section, small property is defined as less than 33 acres. Large property was up about 8%. During the last couple of years, the level of activity increased quite a lot; this area was the last one to start increasing after the big downturn in 2009, and the total number of acres was up substantially.
In region 5, the Gulf Coast and Brazos Bottom area, small property (less than 43 acres) is taking a break after a pretty big increase in 2013. Large properties did increase 10% but there was no remarkable movement in this area.
Region 7, comprised of Austin, Waco, and the Hill Country, defines small property as less than 50 acres. The average price was $7,764 per acre, while large price properties averaged $3,238. It’s a different market than it used to be. The Hill Country volume of activity was up again in 2014, although not quite the level we saw in 2005.
What lies ahead in 2015? A diversified economy will protect Texas. We anticipate a modest slow-down and for markets to continue to forge ahead. However, it will take time to work off the glut. It may be that diversification is less than we thought, and it may be that 2015 will be challenging for Texas.
We may want to make arrangements, as in preparing for some stormy weather. We expect to see some scrambling to find solutions, as buyers and sellers realign their desires and willingness to buy. This year we expect to see a slowdown in the number of acres that change hands, but prices are anticipated to stay steady or perhaps even improve. The key to our expectation that land prices aren’t going to decrease significantly despite what is happening in the oil market is this: Where else is a person going to invest money, especially as foreign investors still need to find a place to park their money.
[Janis Arnold for REDNews]