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Texas Association of Appraisal Districts Austin, TX -- February 25, 2003 Charles E. Gilliland Ph.D. Research Economist Real Estate Center Texas A&M University.

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Presentation on theme: "Texas Association of Appraisal Districts Austin, TX -- February 25, 2003 Charles E. Gilliland Ph.D. Research Economist Real Estate Center Texas A&M University."— Presentation transcript:

1 Texas Association of Appraisal Districts Austin, TX -- February 25, 2003 Charles E. Gilliland Ph.D. Research Economist Real Estate Center Texas A&M University

2 THE OUTLOOK Current Land Markets Current Land Markets Future of Rural Texas Future of Rural Texas Implications for Land Markets Implications for Land Markets

3 CURRENT DEVELOPMENTS HAPPY DAYS ARE STILL HERE 2002 Another Good Year -- Mostly 2002 Another Good Year -- Mostly Inventories Tight Inventories Tight Real Land Prices Rise Real Land Prices Rise

4 20012002 Change Real $212$215 +1.4 % Nominal$945$972 +2.9% Volume4,7134,723 20012002 Change Real $212$215 +1.4 % Nominal$945$972 +2.9% Volume4,7134,723

5 VERY IMPORTANT BUYER MOTIVES FALL 2001

6 TEXAS LAND BUYERS Producers Must Compete For Land Producers Must Compete For Land Prosperity Supports Recreational Users Prosperity Supports Recreational Users Non-Consumptive Recreation Grows Non-Consumptive Recreation Grows Eager Buyers Eager Buyers

7 VERY IMPORTANT SELLER MOTIVES FALL 2001

8 TEXAS LAND SELLERS Estate Settlement Estate Settlement Retirement Retirement Poor Agricultural Markets Poor Agricultural Markets Tight Supplies Tight Supplies

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10 Large Properties 1966-1982385 acres 1983-2002430 acres Large Properties 1966-1982385 acres 1983-2002430 acres Small Typical 50 acres144 acres Small Typical 50 acres144 acres Note: Figures based on regional median tract sizes

11 TRENDS IN UNADJUSTED MEDIAN TEXAS LAND PRICES 20012002 Change Small $1,317 $1,448 +10 % Typical$897$871 - 3 % Large$590$676 +14 % Typical: First decline since 1991 20012002 Change Small $1,317 $1,448 +10 % Typical$897$871 - 3 % Large$590$676 +14 % Typical: First decline since 1991

12 Weighted Median Prices Per Acre Texas Rural Land 1966-2001

13 Weighted Median Prices Per Acre Texas Rural Land 1966-2001 Difference as percent of large tracts 1966 64 % 2002 114 % Pressure to Split Up Properties? Difference as percent of large tracts 1966 64 % 2002 114 % Pressure to Split Up Properties?

14 Average Since 1993 3 Year5.7 % 5 Year5.2 % Since 1991 10 Year4.2 % Average Since 1993 3 Year5.7 % 5 Year5.2 % Since 1991 10 Year4.2 %

15 Average Since 1993 3 Year4.9 % 5 Year4.8 % Since 1991 10 Year3.7 % Average Since 1993 3 Year4.9 % 5 Year4.8 % Since 1991 10 Year3.7 %

16 Average Since 1993 3 Year3.4 % 5 Year3.6 % Since 1991 10 Year1.7 % Average Since 1993 3 Year3.4 % 5 Year3.6 % Since 1991 10 Year1.7 %

17 FOURTH QUARTER 2002 Leveling Off? Most Local Markets Still Increasing Statewide: 4 th quarter $972 Last year $945 3 rd quarter $934

18 FOURTH QUARTER 2002 Size Returning to Normal Amarillo Area Increased 55 Percent Buyers Skipping Over High Priced Areas Timber Woes Hitting East Texas

19 TAKEAWAYS The Party Continues The Party Continues Current Uncertainty A Plus? Current Uncertainty A Plus? Recreation – Investment Dominate Recreation – Investment Dominate Small Tracts On Fire Small Tracts On Fire Continuing Climb in Non-Farm Markets Continuing Climb in Non-Farm Markets Typical Size Markets Weaker Typical Size Markets Weaker

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21 LONG-TERM INFLUENCES Rural Policy in Distress Rural Policy in Distress Current Social Context Current Social Context Negotiating a New Social Contract Negotiating a New Social Contract Implications for Land Markets Implications for Land Markets

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23 SOCIAL CONTRACT FRONTIER 1776 – 1880s Exploration Promoted Exploration Promoted Protection Afforded Protection Afforded Food Supplied Food Supplied Raw Materials Raw Materials Hard Currency Hard Currency Farmers are Majority of workforce. Farmers defined American society Farmers are Majority of workforce. Farmers defined American society

24 SOCIAL CONTRACT STOREHOUSE 1890s – 1970s Subsidies SubsidiesTransportation Irrigation projects REA Direct payments to farmers Low-Cost Food Low-Cost Food After 1880 farmers are less than 50 % of workforce. Farmers supplied Americas tables After 1880 farmers are less than 50 % of workforce. Farmers supplied Americas tables

25 CURRENT SOCIAL CONTEXT US A Suburban Nation US A Suburban Nation 1990 – Half of US in Cities of 1 Million 1992 – Most Presidential Votes from Suburbs 1994 – Top 5 House Positions Suburban 1996 – House 82.5 % Non-Rural 2000 – Majority of US in Suburbs Source: Federal Reserve Bank of Kansas City

26 WHY SHOULD WE INVEST IN RURAL AMERICA? Most Americans could care less if farming and ranching disappear, as long as they get their burgers and fries…. Most Americans could care less if farming and ranching disappear, as long as they get their burgers and fries…. Stephen Blank -- The End of the American Farm? Source: Federal Reserve Bank of Kansas City

27 NEW SOCIAL CONTRACT No Social Contract Since 1970 No Social Contract Since 1970 Rural Interests Holding on to Subsidies Rural Interests Holding on to Subsidies Power and Savvy of Rural Special Interests Power and Savvy of Rural Special Interests Source: Federal Reserve Bank of Kansas City

28 RURAL POLICY IN DISTRESS Characteristics of Rural Policy Characteristics of Rural Policy Agriculture -- Lowest Cost Producers Agriculture -- Lowest Cost Producers Manufacturing -- Low Cost Labor Manufacturing -- Low Cost Labor

29 NEW SOCIAL CONTRACT? Survival of Rural Middle Class Survival of Rural Middle Class Reducing Concentrated Rural Poverty Reducing Concentrated Rural Poverty Sustaining and Improving Natural Environment Sustaining and Improving Natural Environment Karl N. Stauber Ph.D. -- The Economic Review; 2 nd Qtr, 2001 Source: Federal Reserve Bank of Kansas City

30 NEW SOCIAL CONTRACT? Protect and Restore Environment Protect and Restore Environment Produce High-Quality Local Food Produce High-Quality Local Food Create a Laboratory of Social Innovation Create a Laboratory of Social Innovation Produce Healthy, Well-Educated Citizens Produce Healthy, Well-Educated Citizens Prevent Urban Overcrowding Prevent Urban Overcrowding Mark Drabenstott Ph.D. and Katharine H. Sheaff -- The Economic Review; 3 rd Qtr, 2001 Source: Federal Reserve Bank of Kansas City

31 CURRENT AGRICULTURAL POLICIES ACTUALLY HURTING… Absorbing Vast Majority of Resources… Absorbing Vast Majority of Resources… Continuing Myth That Rural and Agriculture are the Same… Continuing Myth That Rural and Agriculture are the Same… Making it Difficult … to Develop … Competitive Advantages… Making it Difficult … to Develop … Competitive Advantages… Higher Land Prices for Farmers Higher Land Prices for Farmers Source: Federal Reserve Bank of Kansas City

32 PRESCRIBED REMEDIES Education Education Conserve Natural Environment and Culture Conserve Natural Environment and Culture Increase Regional Competitiveness Increase Regional Competitiveness Create New Competitive Advantage Create New Competitive Advantage Source: Federal Reserve Bank of Kansas City

33 WHAT WORKS No Competitive Advantage = No Prosperity No Competitive Advantage = No Prosperity Create New, Dont Preserve Old Create New, Dont Preserve Old Build Social and Human Capital Build Social and Human Capital Source: Federal Reserve Bank of Kansas City

34 SUCCESSFUL COMMUNITIES Community Controversy Accepted Community Controversy Accepted Schools Focus on Academics Schools Focus on Academics Resources to Support Joint Risk Taking Resources to Support Joint Risk Taking Raise Taxes to Fund Infrastructure Raise Taxes to Fund Infrastructure Community Inclusive Community Inclusive Leadership Dispersed and Flexible Leadership Dispersed and Flexible Source: Federal Reserve Bank of Kansas City

35 WHAT DOESNT WORK High Levels of Class Division High Levels of Class Division Dominance By Elites Dominance By Elites Lack of Leadership Lack of Leadership Source: Federal Reserve Bank of Kansas City

36 TAKEAWAYS Rural Communities Are at Risk Rural Communities Are at Risk Rural Community Leadership Critical to Success Rural Community Leadership Critical to Success Smaller is Better? Smaller is Better? Debate has Begun Debate has Begun Center for the Study of Rural America http://www.kc.frb.org/RuralCenter/RuralMain.htm Center for the Study of Rural America http://www.kc.frb.org/RuralCenter/RuralMain.htm

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