Boom with a View

BY Charles E. Gilliland and Gerald Klassen

Falcon Point Ranch would like to inform everyone of this great article released
by the Real Estate Center at
Texas A%26M University. The Real Estate Center and the article's authors, Dr.
Charles Gilliland and Gerald Klassen, continue to promote informed research
into the Texas real estate market. We highly recommend their website to anyone
who wishes to stay abreast of Texas real estate.

Land Prices Reach New High

A reprint from Tierra
Grande - original post

by Charles E. Gilliland and Gerald Klassen

Texas land prices hit an all-time high in 2005. The median of $1,483 per acre
was up 16 percent from the $1,274 median in 2004.

Texas land prices set another record at $1,483 per acre in
2005. Texas land prices were up 16 percent from 2004 and 76 percent over 2000
prices. Nonagricultural demand continued to drive markets, and 2006 promises
to be another banner year for Texas land markets.

That milestone marked the fourth double-digit, year-to-year
increase posted in the past five years. The 16 percent gain matched
the 2004 increase and was the third highest annual gain in the past 40 years.
Only 1973 and 1974 had larger year-to-year percentage price increases. This
strong trend has produced a 76 percent, five-year gain in nominal prices.

The real or inflation-adjusted 2005 price of $306 per acre
surpassed the previous record of $288 set in 1984-85. Nominal prices reflect
the actual prices paid while real prices reflect the nominal prices adjusted
for inflation.

Fueled by high levels of activity, the 2005 markets recorded
8,368 sales, exceeding the 2004 record volume of 8,073 sales.

1031 Exchange Motivation

Nonagricultural buyers continue to dominate market activity.
Desire to avoid capital gain taxes has prompted an increasing number of investors
to take advantage of the 1031 exchange opportunities in the IRS regulations.

The 1031 exchange allows an owner to convert one real estate
investment into another without the gain being taxed. Many market participants
now say that 1031 exchanges involving buyers from outside Texas represent a
growing number of Texas land market transactions.

In response, Texans have accelerated their plans to purchase
land before prices move too high. Together, these forces have generated a fever
to identify attractive properties and convince owners to sell.

Regional Land Market Developments

In 2005, the geographic distribution of land prices continued
to reflect both population density and the draw of scenic amenities. The highest
priced land surrounded Dallas-Fort Worth, Houston, El Paso, Austin and the
Lower Rio Grande Valley.

The scenic appeal of the Hill Country is responsible for the
high prices stretching westward from Austin through Fredericksburg to Kerrville.
The lowest priced land is in West Texas from Amarillo through the Trans-Pecos
area to the Rio Grande.

The highest percentage price gains were in a strip from San
Antonio through Gonzales to the coastal
bend. The second highest
percentage price jumps were from the Stephenville region through Wichita Falls,
Lake Texoma, to Texarkana. The South Texas brush country also posted large
price increases. Much of the remainder of the state saw sizable escalation
of prices with only the Highland Lakes, Trans-Pecos and Muleshoe areas cooling
in 2005 following their hot markets in 2004.

Market anomalies accounted for the only regions exhibiting
lower prices and did not signal a general weakening market wide trend. Those
regions will likely rebound in 2006.

Prospects for 2006

Forces propelling prices upward accelerated in 2006, pushing
markets even higher. Investors seem to be anticipating inflation and plowing
funds into tangible assets like land.

Despite high energy price levels, recession does not appear
to be on the immediate horizon, and the economy continues to thrive. Higher
incomes support the demand for recreational property.

Buyers buy now to avoid being priced out of the market as
increasing demand drives prices up. These circumstances have led market participants
to repeatedly note a dearth of quality listings and long lists of potential
buyers.

Troubling market influences include high energy prices and
rising interest rates. At some point, continued high oil prices will sabotage
economic activity. However, they have not derailed the recovery yet. Further
interest rate hikes may take a toll.

Farm policy is in complete disarray so no one can realistically
predict operating conditions for farmers in the near future. And drought stalks
Texas, weakening both farming and ranching. Despite these potential problems,
current activity suggests that by 2007, land prices should post another sizable
increase.

The complete technical report, Texas Land Market Developments
- 2005, is available here.

About the Author

Dr. Gilliland (c-gilliland@tamu.edu)
is a research economist and Klassen is a research assistant with the Real
Estate Center at Texas A%26M University.

About Falcon Point Ranch

If you would like more information
about some great real estate opportunities on the Texas coast in Matagorda
Bay, find out about what Falcon
Point Ranch has to offer. Located in Seadrift, Texas, Bay Club at Falcon
Point Ranch is 150 acres of the finest master-planned coastal real estate in
Texas, featuring exclusive waterfront and waterview homesites, a luxury lodge
and miles of protected shoreline, all surrounded by a 6,000-acre ranch and
wildlife preserve.

Dr. Gilliland is a research economist and Klassen is a research assistant with the Real Estate Center at Texas A%26M University.

1investmenthelp.com Copyright © 2007, All Rights Reserved