After an impressive run-up in demand during the pandemic, rural real estate sales around Dallas-Fort Worth are slowing. However, elevated prices persist, according to the Texas Real Estate Research Center at Texas A&M University.
Over the past year, Texas has seen land values rise over 24%, with prices now averaging $4,286 per acre. This is especially true in Northeast Texas, where values have surged over 27%, reaching nearly $7,400 per acre by the end of the second quarter of 2022. Despite this, the sales volume dropped during this period, falling over 32%.
While record-high values may be unsustainable, Eric Walsh of the Dallas-based brokerage Ulterre Group believes prices could remain high for some time. In Northeast Texas, for example, Walsh pointed to the surge in demand from homebuyers for a cozy rural location to escape the city. The growing availability of remote work options only strengthened it.
“Everybody was coming out of COVID, they think they’ve got a little farm and ranch place that they can escape to, and they realized, ‘Hey, I can work remotely,’ so there was a huge uptick in demand,” explained Walsh.
While the buyers Walsh works with are typically after ranches for recreational purposes, many will also run cattle to help supplement their income.
Despite slowing sales, Walsh believes prices have remained inflated because inventory, while dropping, is still not high enough to support the current demand. Some homebuyers who temporarily went off the market are now making a comeback.
“We’re starting to see them circle back, particularly the recreational ranch users,” said Walsh.
While he acknowledges that rising interest rates contribute to a reduced number of sales, he believes it is only one factor. Lower inventory levels and fewer bidders are also to blame, according to him.
“To say that it’s slowing down just because of interest rates is an oversimplification. A variety of forces are coming together. You’ve got less inventory, fewer people willing to be competitive in the bid process, and the pricing is still at a level not seen, ever,” he said.
As for the elevated prices, he anticipates that they will soften eventually. Still, people have cash ready to spend, so it could be some time before values materially drop.
According to Walsh, lenders are still motivated to provide loans for rural purchases, especially for acreage surrounding DFW. While ag interest rates are typically 1% higher on 30-year loans, borrowers can secure stock in the lending institution and receive dividends.
Walsh explained, “the net effect actually brings the interest rate down to the level of a typical mortgage.”
These loans can be more challenging to secure, but they permit borrowers to buy equipment and materials in addition to land.
While the dynamics of rural real estate in Texas are evolving, broadly speaking, the market remains relatively healthy. Walsh predicts that there will still be an inventory shortage one year from now, which will help buoy rural land values.
“In the Northeast Texas market, the land is still a great place to park low-cost money. Maintain an ag exemption on it, keep the tax rate low, keep that cash invested and wait for things to fire back up,” he said.