(COLLEGE STATION, Tex.) — When it comes to Texas land, expensive things come in small packages. And just like buying from a discount store, buying in bulk can reap big rewards. But depending on where you live in Texas, some savings are larger than elsewhere.
“Small properties sell for more per acre than comparable large tracts,” explained Dr. Charles Gilliland, research economist with the Real Estate Center at Texas A&M University. “Because of this, studies of land price trends based on sales should include an analysis of size trends over time.”
Gilliland knows his stuff. He has been monitoring Texas land prices for more than three decades.
“Specifically, median price per acre may increase from one year to the next, but if that rise is coupled with a sharp drop in the typical tract size, the indicated trend is probably an exaggeration. It may even mask a decline in prices when markets weaken. The 2009 Texas rural land market provides a case in point.
“The statewide median tract size was 145 acres in 1992 when recession-shocked buyers avoided unnecessary spending, and markets were saturated with lender-owned properties remaining from the 1986 economic collapse,” he said. “Median tract size dipped as low as 80 acres in 2007, reflecting the growing number of buyers securing their own personal foothold in the countryside.”
During tough economic times, recreational and investment buyers retreat, leaving the market to farmers and ranchers who typically seek larger tracts, said Gilliland. However, at the onset of tough times, fewer prosperous buyers can muster the resources needed to acquire large properties. Small tracts still find buyers.
“Consequently, the faltering market for large tracts leads to relatively few large-property sales, altering the mix of marketed properties,” said Gilliland.
That dearth of sizable tract sales tips aggregated market statistics toward the small end of the spectrum. As larger tracts fail to sell, potential buyers sense falling prices in the offing and reduce offers. The resulting mix of sales has fewer large properties, and typical tract size falls.
To gauge the effect of such size variations on land prices in Texas, Center researchers analyzed Texas land sales using the seven regions delineated by the Texas Chapter of the American Society of Farm Managers and Rural Appraisers. Sales over a 42-year span were studied.
“This analysis indicates that size matters when determining price trends in Texas land markets,” he said. “In general, large tracts sell for less per acre than small tracts, but premiums and discounts vary from one area of the state to another. Size-adjusted prices indicate land markets are weakening.
“This size-adjusted array of prices more closely reflects the reality of today’s market and suggests that land prices have begun to come back to earth.”
News Release from Texas A&M, The Real Estate Research Center