Texas Land Market Developments: Third Quarter 2004

Prices paid for Texas rural land jumped sharply through third quarter 2004 compared with price levels in the first three quarters of 2003. The weighted median price of Texas rural land rose to $1,252 per acre, 15 percent higher than the 2003 median of $1,087 per acre. Twenty of the 33 land market areas (LMAs) posted a regionwide (statistically significant) increase in median price per acre with percentage increases ranging as high as 51 percent in the Canadian Breaks (LMA 5).

Markets continued to reflect strong demand from recreational buyers and investors. Expectations of rising interest rates and anemic returns on alternative investments undoubtedly contributed to these thriving markets. Markets surrounding the Hill Country–West (LMA15), the Panhandle–North (LMA 1), Trans-Pecos (LMA 8), Coastal Bend (LMAs 20 and 21), Brazos (LMA 27), and Piney Woods–South (LMA 31) posted strong results. This broad geographic distribution of strong price growth indicates the widespread nature of land market gains.

The volume of reported sales fell from 4,243 in the first three quarters of 2003 to 3,017 in 2004. Reduced volume sometimes indicates a cooling off of demand. However, observers indicate that any reduced volume in this market probably stems from a shortage of good-quality properties for sale. Further, this apparent decline may diminish as more third-quarter sales are reported to the Center.

Statewide Trends

• Prices rose 15 percent from $1,087 per acre through third quarter 2003 to $1,252 per acre through third quarter 2004.
• All areas with identifiable regionwide (statistically significant) price trends posted strong increases, ranging from 7 percent in the Blacklands–North (LMA 25, Waco) to 51 percent in the Canadian Breaks (LMA 5).
• The typical size of property sold remained virtually unchanged at a median size of 105 acres.
• Recreational demand continued to dominate markets throughout most of the state.
• Investment demand also continued as a strong driver of markets across Texas.
• Farmers and ranchers are increasingly willing to pay prices higher than historical norms in agricultural areas.
• Even remote areas are seeing active markets with rising prices (the Rolling Plains–North and Trans-Pecos for example), indicating a shift of buyers from higher-priced regions.
• Agents report a shortage of good quality land for sale in most areas.
• Buyers continue to be motivated by low interest rates and a desire for a secure store of wealth.

The following LMAs registered especially strong trends compared with markets in the first half of 2003. The analysis explores some of the forces driving those trends.

Regional Texas Land Market Trends – Third Quarter 2004

LMA 1

• The 2004 median price per acre increased 36 percent compared with the 2003 price.
• Rising milk prices continue to boost demand for land as expanding dairy farms construct added facilities and grow cattle feed.
• Investment motives also have appeared with investors purchasing irrigated cropland hoping to benefit from appreciation.

LMAs 5 and 6

• Recreational buyers continue to flock to these areas in search of suitable property. The market is flooded with buyers pursuing a limited supply of quality properties.
• Investment demand, combined with recreational demand, continues to put upward pressure on prices.

LMAs 10 and 11

• While recreational demand remains the strongest factor, investors play an important role in increased demand within this region.
• Meager returns on CDs and in the stock market have pushed investors seeking higher returns into the land market.
• Dollar-per-acre increases for both regions are up 15 percent.

LMA 12

• Metroplex buyers looking for recreational properties drive the demand for this region.
• Increase in hunting lease rates is enhancing the attractiveness of property ownership, thus increasing the demand.

LMAs 13–17

• With increasing numbers of urban dwellers seeking retreats from city life, recreational demand continues to drive the market in this scenic area.
• Investment motives have also figured prominently in many purchases.
• A limited supply of good land on the market is also creating upward pressure on prices.

LMA 18

• Recreational demand and investment motives continue to dominate in this market.
• Substantial levels of development activity also continue to drive demand for raw land.

LMAs 20 and 21

• As with most areas, wooded land with game populations continues to see rising prices from recreational users in these two regions.
• An influx of investors has also driven demand in this market.
• Dollar-per-acre price increases for third quarter 2004 are up 45 percent in LMA 20 and 38 percent in LMA 21.

LMAs 23, 24 and 25

• Urban sprawl is creating demand for land throughout this region.
• People are moving out of urban areas as they become more congested, putting pressure on land prices.

LMA 27

• The desire for rural land continues to be strong in all parts of this area not only for recreational use but also for residential development.
• New owners either transform the land into high-fenced hunting properties, weekend retreats or residential developments. These uses support high prices.

LMA 31

• The problems and pressures of urban living continue to fuel demand for acreage in the Piney Woods region with buyers acquiring smaller properties at substantially higher prices.
• Recreation is also driving prices in this region.

LMA 32

• Strong economic conditions and rapid urban growth have placed upward pressure on rural land prices leading to a 47 percent increase over 2003 market prices.
• Investors are purchasing property in the outlying areas hoping the population growth will continue and urban-style development will push prices up.
• Strong recreational demand and a shortage of good brush country has prompted some owners to purchase cropland neighboring on unimproved pasture to transform it into suitable recreational land.
• Farmers have made positive returns and entered the market searching for additional cropland.