The 48th Institute on Property Taxation State Comptroller's Property Tax Division's 28th Annual Conference
Austin, TX -- October 30th 2006
Charles E. Gilliland Ph.D.
Real Estate Center Mays Business School Texas A&M University
NATURAL PROCESSES
The alligator, one of the oldest and ultimate predators, normally considered the "apex predator", can still normally fall victim to implemented 'team work' strategy, made possible due to the tight knit social structure and due "survival of the pack mentality" bred into the canines. At times nature can be cruel, but there is also a raw beauty, and even a certain justice manifested within and that cruelty. Note the details in the remarkable photograph courtesy of Nature Magazine. Note that the Alpha dog has a muzzle hold on the gator preventing it from breathing, while another dog has preventing a hold on the tail to keep it from thrashing. The third dog attacks the soft underbelly of the gator. attacks Not for the squeamish!
STATE OF THE ECONOMY
Texas The Future
MONTHLY TEXAS CIVILIAN EMPLOYMENT
In Thousands
10,500 9,500 8,500 7,500 6,500 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Dallas Federal Reserve Bank
http://www.dallasfed.org/data/data/txt.tab.htm
MONTHLY TEXAS CIVILIAN EMPLOYMENT
In Thousands
11,500
10,500
9,500
8,500 2001 2002 2003 2004 2005 2006
Source: Dallas Federal Reserve Bank
http://www.dallasfed.org/data/data/txt.tab.htm
MONTHLY TEXAS UNEMPLOYMENT RATE THROUGH 7/06
10 9 8 7 6 5 4 3 2 1 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Dallas Federal Reserve Bank
http://dallasfed.org/data/data/txu.tab.htm
800
QUARTERLY TEXAS PERSONAL INCOME -SEASONALLY ADJUSTED in Billions of Dollars
700
600
500
400
300
200
100 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: U.S. Bureau of Economic Analysis
http://www.bea.gov/bea/regional/sqpi/action.cfm
TEXAS LEADING ECONOMIC INDICATORS
105 100 95 90 85 1981 1982 1983 1984 1985 1986 1987 1988 1989
Source: Dallas Federal Reserve Bank
TEXAS LEADING ECONOMIC INDICATORS THROUGH 7/06
130
120
110
100 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Dallas Federal Reserve Bank
http://www.dallasfed.org/data/data/leadi.tab.htm
TEXAS LEADING ECONOMIC INDICATORS THROUGH 7/06
130
120
110
100 2001 2002 2003 2004 2005 2006
Source: Dallas Federal Reserve Bank
http://www.dallasfed.org/data/data/leadi.tab.htm
TEXAS ECONOMY NOW
Expanding Through August Strong Pace Employment Increased Retail Sales Choked by Energy
Source: Dallas Federal Reserve Bank
STATE OF THE ECONOMY
• Current Employment – Strong • Coincident Indicators – Moderate to Strong • Leading Indicators – Moderating
MARKETS FOR TEXAS SINGLE FAMILY HOMES
Months of Inventory
12.0 11.0 Months of inventory 10.0 9.0 8.0 7.0 6.0 5.0 4.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Year
Source: Real Estate Center Mays Business School Texas A&M University
MARKETS FOR TEXAS SINGLE FAMILY HOMES
Months of Inventory
7.0 150,000 6.5 Months of inventory Median price 6.0 130,000 5.5 140,000
Dollars
5.0
120,000
4.5
110,000
4.0 2000 2001 2002 2003 2004 2005 2006
100,000
Year
Source: Real Estate Center Mays Business School Texas A&M University
TEXAS RURAL LAND PRICES
Dollars/Acre
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
Nominal Real or Deflated
1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
TEXAS RURAL LAND PRICES
Dollars/Acre
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
Nominal
Real Real Real or Deflated Nominal $974 Nominal $974 Increase Increase Volume 5,882 Volume 5,882
2002 2002 $215 $215
2003 2003 $240 $240
2004 2004 $273 $273
2005 2005 $307 $307
2006P 2006P $353 $353
$1,097 $1,097 13% 13% 7,283 7,283
$1,274 $1,483 $1,764 $1,274 $1,483 $1,764 16% 16% 19% 16% 16% 19% 8,073 8,073 8368 8368 4,276 4,276
1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
SIGNIFICANT PRICE TRENDS PERCENT CHANGE 2004-05
Coastal Prairie--Middle (21) San Antonio (18) Texoma (22) Coastal Prairie -- North (19) North East (29) North Central Plains (12) Rio Grande Plains (11) Crosstimbers (13) Edwards Plateau--So. (10) Brazos (27) Hill Country -- North (14) Rolling Plains -- North (6) Dallas Prairie (24) Blacklands -- South (26) Hill Country South (17) Blacklands--North (25) Fort Worth Prairie (23) Piney Woods--North (30) Edwards Plateau--West (9) South Plains (3) Panhandle--Central (2) Hill Country--West (15) Piney Woods--South (31) Coastal Prairie--South (20) 0 30 30 33 32 32
7
9 10
13 12 11
15 15 15 15
18 18
22 21 21 21
27 26 25 24
20
30
40
SAN ANTONIO AREA LMAs 18, 19, and 21
Up 32 – 34 Percent Highest Gains in State Strong Demand Primarily Recreation Investors Active (1031 Exchange) Searching For Bargains
EAST TEXAS LMAs 29, 30, and 31
Up 21 – 30 Percent Buyers Searching
NORTH TEXAS LMAs 12, 13, 14, and 22, and
Up 21 – 30 Percent Second Highest Gains in State Buyers Searching Florida Buyers 1031 Exchanges Driving Deals Dallas/Fort Worth Buyers
OTHER METRO AREAS LMAs 23, 24, 25, 26, and 27
Fort Worth, Dallas, Waco, Austin, and College Station/Bryan Up 16 – 22 Percent Demand for Development Land Recreational Demand 1031 Exchange
PANHANDLE – NORTH
Up But Non-Significant Changing Distribution of Sales Seeking Out Cheaper Land Much Larger Properties
HIGHLAND LAKES
From $3,552 to $3,488 Changing Distribution of Sales Many More Sales in Outlying Counties Much Larger Sales in Those Counties
PERMIAN WEST
Median Price Off 7 Percent Median Size Up 30 Percent Changing Distribution of Sales 1031 Exchange Dairy Sales 2004 Much Larger Properties in 2005
SIGNIFICANT PRICE TRENDS PERCENT CHANGE 2005-06
Lower Rio Grande V. (32) Houston (28) Dallas Prairie (24) Coastal Prairie--South (20) Fort Worth Prairie (23) Highland Lakes (16) Piney Woods--North (30) Hill Country -- North (14) North Central Plains (12) Coastal Prairie--Middle (21) Hill Country South (17) Crosstimbers (13) Rio Grande Plains (11) Permian--West (4) San Antonio (18) Texoma (22) Hill Country--West (15) Edwards Plateau--West (9) Rolling Plains--Central (7) Rolling Plains--North (6) Panhandle--North (1) Coastal Prairie--North (19)
3 0
9 10
23 21 20 19 18 17 16 16 16 14 12
32 31 30 28 26
35
41 41
57
20
30
40
50
60
2006 METRO AREAS LMAs 24, 28, 23, and 20
Dallas, Houston, Corpus Christi , and Fort Worth Up 32 – 41 Percent Demand for Development Land Recreational Demand Investment / 1031 Exchange
THE SITUATION 2006
Steady Level of Employment Expanding Income Rising Real Estate Values
ABOUT THE FUTURE
Steady Level of Employment Expanding Income Rising Real Estate Values
The Outlook for 2007
Increasing Corporate Profits Moderating Interest Rates Moderate Job Increases High Investment Demand For Real Estate
SPEED BUMPS?
Hurricane Damage High Oil Prices Fed Determined To Slow Economy Real Estate Investment is ‘Cool’ Tax Benefits Driving Commercial Investment
Source: Forbes Magazine
WEST TEXAS INTERMEDIATE CRUDE OIL PRICE
80 75 70 65 60 55 50 45 40 35 30 25 20 15 2000 2001 2002 2003 2004 2005 2006
Source: Dallas Federal Reserve Bank
TEXAS RURAL LAND VALUES
Dollars per acre
6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
19 6 19 6 6 19 7 6 19 8 6 19 9 7 19 0 7 19 1 7 19 2 7 19 3 7 19 4 7 19 5 7 19 6 7 19 7 7 19 8 7 19 9 8 19 0 8 19 1 8 19 2 8 19 3 8 19 4 8 19 5 8 19 6 8 19 7 8 19 8 8 19 9 9 19 0 9 19 1 9 19 2 9 19 3 9 19 4 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 05
Source: Real Estate Center Mays Business School Texas A&M University
Texas Statewide Austin Area South Plains Area Kerrville Area
Yield in percent
CAPITAL GAIN RETURNS OVER INFLATION FOR TEXAS RURAL LAND SOLD IN 2005
15.0
10.0
5.0
0.0 3 Year investment -5.0 5 Year investment 10 Year investment -10.0
-15.0
-20.0
19 6 19 6 6 19 7 6 19 8 6 19 9 7 19 0 7 19 1 7 19 2 7 19 3 7 19 4 7 19 5 7 19 6 7 19 7 7 19 8 7 19 9 8 19 0 8 19 1 8 19 2 8 19 3 8 19 4 8 19 5 8 19 6 8 19 7 8 19 8 8 19 9 9 19 0 9 19 1 9 19 2 9 19 3 9 19 4 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 2
Year purchased
Source: Real Estate Center Mays Business School Texas A&M University
Dollars per acre
1,000 1,100 1,200 1,300 1,400 1,500 1,600 100 TRERC Price 50 Year trend 200 300 400 500 600 700 800 900 0
Source: Real Estate Center at Texas A&M University
WHERE TO NOW?
19 6 19 6 196 7 6 19 8 6 19 9 197 0 7 19 1 72 19 7 19 3 197 4 7 19 5 7 19 6 197 7 7 19 8 197 9 8 19 0 198 1 8 19 2 8 19 3 84 19 8 19 5 198 6 8 19 7 8 19 8 198 9 9 19 0 199 1 9 19 2 93 19 9 19 4 9 19 5 96 19 9 19 7 199 8 9 20 9 200 0 0 20 1 02 20 200 3 0 20 4 05
USDA FARM REAL ESTATE VALUES
2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1950 1955
USDA value 55 Year trend
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
TEXAS RURAL LAND PRICES
Projections -- Post 2001 Market Conditions
$3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Observed price Fitted price
TEXAS RURAL LAND PRICES
Projections -- Post 2001 Market Conditions
$3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
WHAT IF: WHAT IF:
Observed price Fitted price 2006 2006
$1,640 $1,640 10% 10% 2011 2011 $2,267 $2,267 52% 52%
Projection Projection
TEXAS RURAL LAND PRICES
Projections -- Post 2001 Market Conditions
$1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 2000 2001 2002 2003 2004 2005
Observed price Fitted price
TEXAS RURAL LAND PRICES
Projections -- Post 2001 Market Conditions
$1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 2000 2001 2002 2003 2004 2005
Observed price Fitted price 2006 2006
Projection Projection $1,640 $1,640 10% 10% 2011 2011 $2,267 $2,267 52% 52%
Dollars per acre
1,700
TEXAS LAND INVESTMENT IN 2006 DOLLARS
10.00% Price Per Acre 8.00% 6.00% 4.00% 2.00%
1,500
10-Yield
1,300
1,100
0.00% -2.00%
900
-4.00% -6.00% -8.00%
700
500
196 6 196 7 196 8 196 9 197 0 197 1 197 2 197 3 197 4 197 5 197 6 197 7 197 8 197 9 198 0 198 1 198 2 198 3 198 4 198 5 198 6 198 7 198 8 198 9 199 0 199 1 199 2 199 3 199 4 199 5 199 6 199 7 199 8 199 9 200 0 200 1 200 2 200 3 200 4 200 5 200 6
-10.00%
Year Sold
Source: Real Estate Center Mays Business School Texas A&M University
Dollars per acre
1,700
TEXAS LAND INVESTMENT IN 2006 DOLLARS
10.00% Price Per Acre 8.00% 6.00% 4.00% 2.00% 10-Yield
1,500
1,300
1,100
0.00% -2.00%
900
-4.00% -6.00% -8.00%
700
500
197 3 197 4 197 5 197 6 197 7 197 8 197 9 198 0 198 1 198 2 198 3 198 4 198 5 198 6 198 7 198 8 198 9 199 0 197 1 196 9 196 8 196 6 196 7 199 2 199 3 197 0 199 4 197 2 199 5 199 6 199 1
-10.00%
Year Purchased
Source: Real Estate Center Mays Business School Texas A&M University
10.0
Percent
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Source: U.S. Department of Commerce
ANNUAL INFLATION MEASURED BY IMPLICIT PRICE DEFLATOR OF GDP
Inflation
19 6 19 7 6 19 8 6 19 9 7 19 0 7 19 1 7 19 2 7 19 3 7 19 4 7 19 5 7 19 6 7 19 7 7 19 8 7 19 9 8 19 0 8 19 1 8 19 2 8 19 3 8 19 4 8 19 5 8 19 6 8 19 7 8 19 8 8 19 9 9 19 0 9 19 1 9 19 2 9 19 3 9 19 4 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 5
Percent
ANNUAL INFLATION MEASURED BY IMPLICIT PRICE DEFLATOR OF GDP
4.0
Inflation 3.0
2.0
1.0
0.0
8 3 6 9 2 1 6 9 2 4 7 0 5 7 0 3 4 20 0 19 8 19 9 19 9 8 1 19 9 19 9 20 0 20 0 19 8 19 9 19 9 19 8 19 8 19 9 19 9 19 9 20 0 20 0 19 9 20 0 5
Source: U.S. Department of Commerce
Dollars per ounce
100
150
200
250
300
350
400
450
500
550
600
650
50
0
Source: World Gold Council
AVERAGE ANNUAL GOLD PRICES
World Price of Gold
19 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2099 2000 2001 2002 2003 2004 05
AVERAGE ANNUAL GOLD PRICES
Dollars per ounce
450 World Price of Gold
400
350
300
250
19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05
Source: World Gold Council
AVERAGE ANNUAL GOLD PRICES
Dollars per ounce
450 World Price of Gold Texas Land Prices 400 1650 1550 1450 1350 1250 1150 1050 350 950 850 750 650 300 550 450 350 250 250 150
19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05
Source: World Gold Council Real Estate Center
CORPORATE PROFITS
(With Inventory Valuation Adjustment & Capital Consumption Adjustment)
$1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05
Source: U.S. Department of Commerce
Billions
BOOMERS DIFFER FROM PARENTS
Better Health Willing to Spend Value Adventure
Source: Ken Dychtwald Ph.D.
7 6 5 4 3 2 1 0
Population
TEXANS OVER AGE 65 Percent of
2001
2004
2007
2010
2013
2016
2019
2022
2025
2028
2031
2034
2037
Source: Texas State Data Center
2040
ADDED TEXANS OVER AGE In Thousands 65 170
140 110 80 50 20
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Source: Texas State Data Center
TOP 1 PERCENT OF WEALTHHOLDERS - 1995
$2.4 Million or More 12 Years Older than General Population 77.3 Percent 45 or Older 71.1 Percent Self Employed
Source: Edward Wolff -- Journal of Economic Perspectives
TOP 20 PERCENT OF BOOMER WEALTHHOLDERS - 2001
Median Net Worth $597,900 Holds Nearly 80 Percent of Net Worth Percent of Net Worth Increased 2.1 Percent Since 1989
Source: AARP – Survey of Consumer Finance
CALIFORNIANS?
Floridians?
NORMAL YIELD CURVE
5.0 4.0 Percent 3.0 2.0 1.0 0.0 1-Mo 1-Yr 2-Yr 5-Yr 10-Yr 20-Yr
January, 2004
Source: US Treasury
YIELD CURVE FLATTENING?
5.5 5.25 Percent 5 4.75 4.5 4.25 4 1-Mo 1-Yr 2-Yr 5-Yr
August, 2006
February, 2006
10-Yr 30-Yr
Source: US Treasury
LAND MARKET PROSPECTS
Baby Boom Wave Headed For Retirement Farm Debt Load Is Manageable Real Estate Still Attractive Markets Very Active
LAND MARKET PROSPECTS
Markets Reflect New Realities 2006 Prices Continue to Climb Long-term Price Growth Likely to Moderate Texas Countryside to Change