Texas LAND Spring 2013

MARKET REPORT
Closing the book on 2012 with the winter that really wasn’t, Texas land
markets posted solid results after a tumultuous year that saw threats
of sizable tax increases and other changes in government. Support
for higher prices emerged in many markets across the state. Even the
lackluster northeast region saw prices stabilize. At $2,284 per acre,
the preliminary 2012 price marks a solid 6 percent increase over the
C l o s i n g o u t 2 0 1 2 :
T h e E n d o f
U n c e r t a i n t y ?
representing more than 1.2 million acres statewide. The 1990s total
acreage exceeded 1.5 million acres in all but one year and exceeded
2 million acres in 1997 and 1998. The preliminary total for 2012 at
slightly more than 965,000 acres falls well short of the 1.5 million
acres changing hands in 2008. Historical precedent suggests that a
pent-up supply of acres awaits the awakening of a pent-up demand.
2011 price. This remarkable result appears to signal a departure from
the malaise of the past three years, as increasing numbers of buyers
no longer expect falling prices. As Figure 1 reveals, the statewide
nominal price tops the previous peak set in 2008 at $2,247 per acre.
The inflation adjusted or real price at $407 per acre in 1966 dollars
exceeds 2007 prices and is closing in on the 2008 peak real price of
$424 per acre. In terms of price, the land market has recovered all of
the ground lost in 2009 to the great recession. These developments
suggest that 2013 may preside over a market renaissance.
Perhaps as a harbinger of expanding markets, activity noted by market
observers appears to have increased in the final quarter of 2012.
However, this acceleration of activity appears to have concentrated
on three general property types: smaller, sometimes highly improved,
acreages; cropland of all sizes; and large, operating livestock ranches.
Missing from that list are the ranchland properties in the middle of the
array. Potential buyers appear to be reluctant to commit to purchases
of those mid-sized properties at current price levels under current
economic circumstances.
L a r g e r a n c h p u r c h a s e s
f o r m a n y m i l l i o n s o f
d o l l a r s a l s o r e f l e c t t h e
c u r r e n t i n v e s t m e n t c l i m at e .
A lt e r n at i v e i n v e s t m e n t s
e i t h e r p r o v i d e m e a g e r r e t u r n s ,
p r e s e n t s u b s t a n t i a l r i s k s , o r
c o m b i n e m e a g e r r e t u r n s w i t h
u n a c c e p t a b l e l e v e l s o f r i s k .
Oil patch prosperity along with increasing economic activity in Texas
has unquestionably fueled the demand for smaller acreages. However,
reported experiences vary according to the size of property, type of land,
and location. Smaller tracts find eager bidders among professionals in
the petroleum industry as well as a cross section of the aging babyboom
generation set on retirement. Postponed purchases have now
begun to occur more frequently. Never the less, buyers’ emphasis
continues to focus on high quality properties and an abundance of
acreage for sale relieves pressure to close the deal quickly.
However, market price improvements masked a continuing muted level
in the volume of sales. The 4,334 sales reported to the Real Estate
Center at Texas A&M University exceeds the 2009 volume of 4,139
sales and approximates the volumes seen in the 1990s well short
of the experience in the 2003-2008 era (See Figure 3). In addition
to the lackluster level of transactions, the number of acres changing
hands remained uncharacteristically low for the fourth straight year as
shown in Figure 2. Even the troubled years of the 1980s posted sales
50 SPRING 2013
Cropland continues to attract strong interest among a wide variety of
buyers motivated by the investment return realized by farm income
plus the potential for future capital gain. Good quality irrigated
cropland with strong water sees especially strong interest among
potential buyers. These markets reflect the strong prices seen in
commodity markets starting with corn and touching most other crops
as well. Prices in the cropland region of the high plains and panhandle