As the market enters 2023, real estate brokers expressed caution due to the economy and input costs, but also expressed some optimism, with cattle prices increasing the demand for cattle ranches.
Texas A&M’s Texas Real Estate Research Center (TRERC) issued its 2023 economic forecast, predicting inflation will likely continue throughout the year. TRERC forecasts the Federal Reserve will continue to raise interest rates in 2023, but did not indicate how much they will rise or if higher rates will curb inflation.
According to TRERC, the rise in interest rates will result in fewer land transactions than in 2022. If the hike in interest rates results in a recession, it will place further downward pressure on transactions. TRERC predicts prices for lower-quality land will fall, while prices for high-quality properties will remain steady.
Robby Vann, agent with Chas. S. Middleton and Sons and certified appraiser, told WLJthe uncertainty with inflation and the possibility of a recession cooled the market in the summer of 2022. Vann, who sells property in central Texas and the Texas Hill Country, concurred with TRERC, saying the increases in recent years are not sustainable, prices will stabilize and we won’t be seeing any increases, but, “I don’t think we will see any drop in values.”
Keith Brownfield, associate broker at Steinborn & Associates in Las Cruces, NM, told WLJ the increase in interest rates, including the increasing cost of operating loans, could impact the real estate market. Brownfield also noted that the rise in input costs for producers could also affect people interested in purchasing.
However, Andy Groseta, owner of Headquarters West, Ltd., told WLJ that even though input costs have increased, so have prices for cattle. As profitability is returning to operations, the market looks favorable, particularly for cattle properties. Groseta noted that input costs in Arizona are relatively low compared to other states, which makes the state an opportunity for producers looking to expand or relocate their operations.
Texas/Oklahoma
Farmers National Company, a landowner services company, wrote in its Regional Land Value Report published in January that demand for quality irrigated land has remained steady through the fall months.
“The demand for dryland and pasture became stale with little to no increase in value for these land classes. The ongoing drought in Oklahoma and Texas slowed demand in late summer and into the fall months. In the recent weeks, we have seen an increase in interest for all land classes with potential sales being favorable into the coming months,” Tyler Ambrose, area sales manager for the Southern Region, wrote.
“With a lack of inventory on the market, buyer interest will increase and could push sales. However, market values do not appear to be increasing.”
USDA National Agricultural Statistics Service’s 2022 Land Value Summary showed the farm real estate average value per acre in Texas and Oklahoma was $2,560 per acre, an 11.3% increase from 2021.
Vann noted a lack of inventory during the pandemic, and as prices continued to rise, more sellers came into the market hoping to take advantage of the higher prices. Vann continued that there are still buyers looking for properties, but it is beginning to become a buyer’s market.
Vann said he has a very attractive 680-acre ranch currently priced at $15,000/acre, but its value is now between $10,000-12,000/acre, and the sellers would entertain an offer within that price range. Vann said land values for his area are typically $6,000-7,000/acre and are $4,500-5,000/acre in Mills County, located just north of him. Vann said the land values will decrease the further you get away from Austin.
Vann said the drought has hurt the market somewhat, as investors are looking at the current conditions of riverbeds and lakes at low levels, and not looking at the properties’ potential. Vann said most buyers in his portion of the state are looking at recreational properties to purchase to hedge against inflation.
New Mexico
Brownfield said 2022 was a good year, with a mixture of buyers, from people wanting to continue the legacy of ranching and agriculture, to investors looking to purchase ranches.
Brownfield said those wanting to continue the legacy of passing down a ranch to the next generation were working professionals typically looking for smaller ranches of seven to 15 sections to have a few head of cattle and to teach their children the ranching lifestyle. At the same time, investors were looking for ranches to put 300 head or more.
Brownfield said most investors in the southwest portion of New Mexico, where his office is located in Las Cruces, are looking for cow-calf operations, and in other parts, some investors are looking for hunting and conservation properties.
Based on recent LandWatch data—an online seller of rural property—New Mexico ranks second in the U.S. for the combined acres currently for sale in the state. LandWatch recently had $4 billion of farms, ranches and other land parcels for sale, representing a total of 2 million acres of land for sale in the state.
The Land Value Summary shows the farm real estate average value per acre for New Mexico at $610/acre, a 1.7% increase. Irrigated and non-irrigated values increased by 7.8% to an average of $1,790/acre. However, irrigated land garners a premium of an average of $4,900/acre.
Brownfield said he cannot predict what the market will do in 2023, as there still is a demand to buy land.
“The flip side of it is you wonder if it’s going to cool off because input costs have gone up so dramatically,” he said.
Brownfield believes land prices will stabilize and the market will shift somewhat to the buyer’s advantage.
Arizona
Groseta said 2022 was an excellent year for cattle ranch real estate sales. He said properties for 200-500 head are selling, as well as smaller properties. He continued that prices on land with grazing permits have gone up in the last couple of years and the price depends on the type of land, building improvements and the types of leases. Groseta said most ranches come with some type of grazing permit, as the majority of the state is public lands.
The Land Value Summary shows the farm real estate average value per acre for Arizona at $8,350/acre, an 8.4% increase over 2021.
Groseta noted that inventories are low and said, “We saw some more ranches come on the market, in particular Forest Service permit ranches. They saw very good demand from buyers and I would say right now if somebody called me up and wanted to look at three good ranches that were around 250 head, I’d have a hard time showing them some.”
Groseta noted that sales of irrigated horse properties slowed, along with properties for development, as home builders are pulling out of deals since the Federal Reserve raised interest rates. He continued that the prices on horse properties are above the median price for residential properties, making them a “secondary thing that you don’t need right now,” and the market is not strong for recreational properties in the state, particularly in Verde Valley.
Following the 2024 partial completion of the Taiwan Semiconductor Manufacturing Co.’s new semiconductor factory north of Phoenix, Groseta said the demand for development properties could increase. According to the Arizona Republic, the factory will generate 4,500 jobs and suppliers will hire an additional 13,000 jobs. Groseta pointed out the Verde Valley and Prescott area is a 45-minute drive from the facility, versus the one hour-plus commute from the metro Phoenix area.
All the brokers could not predict what the market will look like in 2023. They noted that buyers are taking a cautious approach due to economic uncertainty. — Charles Wallace, WLJ editor
