Land Insights (Spring 2024)

Editor’s note: This article/data was originally finalized by the author on Feb. 13, 2024.

High interest rates continue to reduce effective demand for many appreciable assets, including rural land. Texas land brokers report low inventories and activity, with scattered price reductions in several listings. Widespread capitulation is not evident, but some investors appear to expect better buying opportunities around the corner. Additionally, declines in total dollar volume and the recent slowdown in price appreciation imply many potential buyers think prices are too high, at least considering current financial conditions. Nonetheless, high-quality lands are still selling at handsome prices.

Year in Review – Land Sales

The fourth quarter of 2023 saw annual sales volume slip 44.6 percent year-over-year (see table). The third quarter of 2023 saw a similar decrease, but the 4Q2023 drop in quarter-only volume is not as drastic with sales down just 14.7 percent. Nonetheless, the cooldown in sales is obvious. Sales activity has decreased dramatically over the last 18 months to levels not seen since 2013. Even while sales volumes are down, prices continued to rise on par with the annual rate of increase we observed from 2016 to 2019. Based on the latest data, prices rose 5 percent to $4,670 per acre statewide from year-end 2022 through year-end 2023.

Total dollar volume declined by 59.2 percent over the prior annualized total. Our 2023 large land sales sample includes a total of 279,509 acres changing hands, down 61.2 percent over 2022. Market activity has fallen below normal levels at high prices. The typical transaction size retracted 7.5 percent from the same quarter a year ago.

Trends were similar across each of Texas’ seven regions, with some important differences.

Except for Region 7 (Austin–Waco–Hill Country), where price dipped ever so slightly (less than 1 percent), the remaining regional prices continued to increase, from 0.6 percent in Region 5 (Gulf Coast–Brazos Bottom) to a whopping 23.6 percent jump in Region 2 (Far West Texas). However, every region saw a decline in total acres sold. Region 2 declined the least at 26.5 percent while Region 3 (West Texas) saw the steepest decline in acres sold at 74.4 percent. Interestingly, Region 1 (Panhandle–South Plains) displayed the most striking contrast of acres sold and price per acre, down 62.2 percent and up 11.3 percent, respectively.

This trend to rising prices and declining activity suggests demand is decreasing. Therefore, it is not surprising that brokers report fewer enthusiastic potential buyers except for the most attractive tracts of land.

Comparing sales from 2022 to 2023 across Texas’ 33 Land Market Areas (LMAs) also indicates a mix of gains and losses in prices statewide with the quarterly median up 4 percent overall. Eleven LMAs had falling prices, but only one indicated a statistically verifiable trend (LMA 17, Hill Country South). However, 11 LMAs with price increases showed a verifiable trend. Every LMA except Canadian Breaks (LMA 5) saw annualized declines in sales volumes. The report confirms these declines, with 2023 falling 45 percent below 2022. The typical size among the LMAs was down 6 percent to 115 acres.

Outlook

There have been signs that inflation and the labor market are cooling, though inflationary concerns endure. The Federal Reserve is widely expected to maintain the current funds rate through at least the first quarter. Most market prognosticators expect the Fed to begin rate cuts around mid-2024, but this is speculative. 

The Russia/Ukraine war drags on, and Middle East tensions remain high, two factors that complicate energy markets. However, expectations of a recession in the first half of 2024 have all but evaporated. Government spending has in part stimulated consumer spending and propped up the economy longer than most expected. The labor market is mixed; while headline numbers are strong, average hours worked have softened and much of the job growth came in part-time work.

The reported rate of wage growth has caught up to inflation generally, but consumer debt is rising and aggregate savings are now below pre-pandemic levels. Meanwhile, a cloud of concern hovers over commercial real estate, given higher cap rates and roll risks, especially for office space in markets with reduced occupancies. Texas GDP growth and total Texas personal income are stronger than national GDP and income growth.

While such conditions often favor investments in land, buyers are exhibiting caution.