Energy Drives Gains in Texas Rural Land Values

May 31, 2018 05:00 AM
The average value of an acre of Texas rural land jumped 4.5% in 2017 to an average value of $2,644.

The average value of an acre of Texas rural land jumped 4.5% in 2017 to an average value of $2,644, according to data collected by the Texas Real Estate Center (REC) at Texas A&M University. In 2016, Texas rural land values marked six consecutive years of increases.

That annual gain was the result of a strong surge posted during the fourth quarter, following weaker values posted in both the second and third quarter. The impressive fourth-quarter gain was prompted by “rebounding activity in the energy sector,” says Charles E. Gilliland, REC research economist. The increase posted in 2017 is the strongest growth since 2014, he notes. 

At 6,272 reported sales, transaction volume also outpaced 2016 results by 13%. The upturn in volume coincided with a total dollar volume of $1.217 billion, up 27% in 2016. 

Texas Rural Land Values

“Overall, Texas land markets continued to thrive; however, market improvements depended heavily on regional energy-related developments,” Gilliland says.

Location, Location.

That observation is particularly apparent in Far West Texas (Region 2) where “land prices rose dramatically in the second quarter, ratcheted up in the third quarter and blasted off in the fourth quarter with a 32.5% increase,” he states. Driving the surge was the rise in oil prices above $60 a barrel mid-year and the continued gain to $70. 

A Historical Look at Texas Rural Land Prices

Additionally, demand for fracking sand has resulted in spectacular gains in land prices in Winkler County, which is in the heart of the Permian basin. “There were a number of sales at $10,000 per acre where prices were $200 or less a couple of years back,” he observes. “In one case, a listing in that area was unable to draw any interest at $3 million. Then oil prices shot up and the broker’s phone started ringing. The property sold at eight times that amount.”

Similarly, Regions 5 and 6, which saw declining prices from fourth quarter 2015 through third quarter 2016, posted moderate price gains in 2017. But Region 6 saw a strong 12.1% gain in the fourth quarter.

Other regions saw weakness in 2017, however.

  • The Panhandle and South Plains (Region 1) notched a 6.3% decline. Prices were weaker in the first quarter but firmer in the second and third quarters. But the decline in the fourth quarter dropped values below second quarter 2016 levels.
  • Prices in West Texas (Region 3) saw prices fall by 3.8% in the fourth quarter, dropping to early 2016 levels. Land prices in that region are somewhat tied to crop prices and did not participate in the energy play.
  • Prices in Northeast Texas (Region 4) rose a healthy 6.7%.
  • The Austin-Waco-Hill Country (Region 7) continued to struggle, marking a 1.1% decline, following modest declines in the second and third quarters. Strengthening urban economies should reverse this weakness in the future.  

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