Will Texas Land Prices Continue to Rise?

Q: What effect do you think the continued weakening of the value of U.S. dollar will have on Texas rural property prices/values? Will they hold their own by becoming more attractive to foreign investors - and/or as a safe haven as a tangible asset for U.S. investors - or will they begin to lose value because of the weakening housing market and its ripple effect on the economy?  

A: The weak dollar makes Texas land less expensive to foreign investors and some have already taken advantage of the situation by purchasing timberlands in East Texas. As of July, there did not appear to be a rush of offshore investors into the market. However, some U.S.-based buyers appear to be anticipating future inflation as they aggressively seek out properties that are not offered for sale. These forces undeniably continue to exist.

The question focuses on the effects of the credit crunch and housing market woes. Currently, the volume of sales in rural Texas appears to have slowed from the frenzy of activity in the past three years. The future depends on the Federal Reserve’s response to the credit crunch and associated home market slowdown. If the Fed continues to augment the money supply by cutting the fed funds rate, as some pundits have urged them to do, many investors will likely see a higher risk of inflation in the future. 

That view will prompt more activity in the land market. On the other hand, if the downward spiral in the housing markets precipitates a recession, land markets will likely falter. At this writing, it is far from clear which path the economy will follow. Judging from past experience, the Fed will probably try to avoid recession by expanding the money supply until the panic subsides. That prescription will breathe new life into Texas land markets as inflation driven investors seek a safe store of wealth. Additionally, Texas land will become even more attractive to foreign money. If the Fed pursues this strategy, Texas land markets will thrive. 

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Dr. Charles Gilliland is a research economist at the Texas A&M Real Estate Center.

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