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Aug 21, 2020

Sized to Sell

Various factors impact local land market prices and activity. The size of available properties has a large influence on the marketing possibilities. Specifically, buyers simply cannot afford properties beyond a certain size. Similarly, they frequently have a particular sum dedicated to the land purchase. They need to find tracts large...
2281-hero
By
Charles E. Gilliland
,
Shelbi Greaves
,and
Tian Su
The Takeaway

Property size can significantly impact sales activity and prices in Texas land market regions. A Real Estate Center study segmented the Austin-Waco-Hill Country land market region by size to show market trends for that region.​

Various factors impact local land market prices and activity. The size of available properties has a large influence on the marketing possibilities. Specifically, buyers simply cannot afford properties beyond a certain size. Similarly, they frequently have a particular sum dedicated to the land purchase. They need to find tracts large enough to use all of that dedicated investment.

​In this manner, most buyers find themselves considering properties within a range of sizes. In a sense, then, land markets consist of a series of properties occupying different size-segments of the overall market. Consequently, buyers and sellers compete with similarly situated buyers and sellers.

The Real Estate Center recently analyzed Austin-Waco-Hill Country’s land market, segmented by size. Using the acreage distribution of sales reported to the Center from 1966 through 2009, the Center estimated the quintiles of size of transaction over a period that had varying socio-economic conditions. Quintiles divide a population into fifths. Specifically, the 20th percentile represents the size where 20 percent of the population of sales are equal to or smaller than that acreage value. Quintiles are defined by the 20th, 40th, 60th, and 80th percentiles.

The first quintile represents a separate market with its own dynamics. It is analyzed separately and not r​eported here. The Center’s study concentrated on the next four quintiles beginning with sales of properties with a size ranked between the 20th and 40th percentiles. This is the smallest-sized market segment. Each quintile value served as a guide in setting the boundaries of the market segments. This process produced four market segments for the region: smallest, small, medium, and large (Table 1).

 

What Segmentation Sh​​o​​ws About Austin-Waco-Hill Country

Austin-Waco-Hill Country’s smallest market segment registers an average of 58.6 transactions each year with a standard deviation of 31.7 percent for a coefficient of variation of 53.2 percent (Table 2). The coefficient of variation measures the standard deviation as a percentage of the mean. The average transaction consisted of 69.3 acres with a small standard deviation of 4.1 and a coefficient of variation of 5.9 percent. Together, these indicate the number of sales varies substantially while the average size does not.

The annual calculated median price and size for individual market segments indicate the typical price per acre and size of transaction for land in that market segment in the area. In addition, the analysis provides the number of sales and total acreage for transactions in each market segment. These statistics allowed calculation of real prices in 2019 dollars as well as the total dollar volume of transactions in each segment.

Price trends for sales in Austin-Waco-Hill Country’s four land market segments are shown in Figure 1. The blue lines in each graph represent the median price paid for land in that market segment. The red lines show the median price adjusted to 2019 dollars. 

Beginning in 1966, segment prices remained relatively steady in real terms for several years, with each segment experiencing a pronounced decline during the 1980s. Real prices then settled into a narrow range followed by a rapid increase after 2000. From the 1970s through 1986, nearly all of the segment real prices remained relatively flat. The market segments exhibited similar trends throughout the decades at different levels of pricing.


The combination of median price multiplied by total acreage for each market segment in the region produces an estimated real total dollar volume measured in 2019 dollars (Figure 2). The three smaller segments fluctuated at approximately $30 million much of the time with the largest segment presiding over a $40 million market. However, following the Great Recession total market revenues began to expand in all segments as prices rose, and the total acreage sold expanded. Fluctuations in this total revenue number hint at the conditions applying in the markets. When difficulties appear, total dollar volume tends to contract, especially in the largest land market segment.


For statistics on other Texas regions, read the technical report

Structural Trends of Regional Texas Rural Land Markets
.



___________________
Dr. Gilliland ([email protected]) is a research economist and Tian Su and Shelbi Greaves are research interns
with the Real Estate Center at Texas A&M University.

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