Texas Association of Appraisal Districts Austin, TX -- February 25, 2003

1. OUTLOOK FOR TEXAS RURAL LAND MARKETS -- 2003 Charles E. Gilliland Ph.D. Research Economist Real Estate Center Texas A&M University Texas Association of Appraisal Districts Austin, TX -- February 25, 2003

2. THE OUTLOOK • Current Land Markets • Future of Rural Texas • Implications for Land Markets

3. CURRENT DEVELOPMENTSHAPPY DAYS ARE STILL HERE • 2002 Another Good Year -- Mostly • Inventories Tight • Real Land Prices Rise

4. 2001 2002 Change Real $212 $215 +1.4 % Nominal $945 $972 +2.9% Volume 4,713 4,723

5. VERY IMPORTANT BUYER MOTIVES FALL 2001

6. TEXAS LAND BUYERS • Producers Must Compete For Land • Prosperity Supports Recreational Users • Non-Consumptive Recreation Grows • Eager Buyers

7. VERY IMPORTANT SELLER MOTIVES FALL 2001

8. TEXAS LAND SELLERS • Estate Settlement • Retirement • Poor Agricultural Markets • Tight Supplies

10. Large Properties 1966-1982 385 acres 1983-2002 430 acres Small Typical 50 acres 144 acres Note: Figures based on regional median tract sizes

11. TRENDS IN UNADJUSTED MEDIAN TEXAS LAND PRICES 2001 2002 Change Small $1,317 $1,448 +10 % Typical $897 $871 - 3 % Large $590 $676 +14 % Typical: First decline since 1991

12. Weighted Median Prices Per Acre Texas Rural Land 1966-2001

13. Weighted Median Prices Per Acre Texas Rural Land 1966-2001 • Difference as percent of large tracts • 64 % • 2002 114 % • Pressure to Split Up Properties?

14. Average Since 1993 3 Year 5.7 % 5 Year 5.2 % Since 1991 10 Year 4.2 %

15. Average Since 1993 3 Year 4.9 % 5 Year 4.8 % Since 1991 10 Year 3.7 %

16. Average Since 1993 3 Year 3.4 % 5 Year 3.6 % Since 1991 10 Year 1.7 %

17. FOURTH QUARTER 2002 • Leveling Off? • Most Local Markets Still Increasing • Statewide: • 4th quarter $972 • Last year $945 • 3rd quarter $934

18. FOURTH QUARTER 2002 • Size Returning to Normal • Amarillo Area Increased 55 Percent • Buyers Skipping Over High Priced Areas • Timber Woes Hitting East Texas

19. TAKEAWAYS • The Party Continues • Current Uncertainty A Plus? • Recreation – Investment Dominate • Small Tracts On Fire • Continuing Climb in Non-Farm Markets • Typical Size Markets Weaker

21. LONG-TERM INFLUENCES • Rural Policy in Distress • Current Social Context • Negotiating a New Social Contract • Implications for Land Markets

23. SOCIAL CONTRACT FRONTIER 1776 – 1880s • Exploration Promoted • Protection Afforded • Food Supplied • Raw Materials • Hard Currency Farmers are Majority of workforce. Farmer’s defined American society

24. SOCIAL CONTRACT STOREHOUSE 1890s – 1970s • Subsidies • Transportation • Irrigation projects • REA • Direct payments to farmers • Low-Cost Food After 1880 farmers are less than 50 % of workforce. Farmer’s supplied America’s tables

25. CURRENT SOCIAL CONTEXT • US A Suburban Nation • 1990 – Half of US in Cities of 1 Million • 1992 – Most Presidential Votes from Suburbs • 1994 – Top 5 House Positions Suburban • 1996 – House 82.5 % Non-Rural • 2000 – Majority of US in Suburbs Source: Federal Reserve Bank of Kansas City

26. WHY SHOULD WE INVEST IN RURAL AMERICA? • Most Americans could care less if farming and ranching disappear, as long as they get their burgers and fries…. Stephen Blank-- The End of the American Farm? Source: Federal Reserve Bank of Kansas City

27. NEW SOCIAL CONTRACT • No Social Contract Since 1970 • Rural Interests Holding on to Subsidies • Power and Savvy of Rural Special Interests Source: Federal Reserve Bank of Kansas City

28. RURAL POLICY IN DISTRESS • Characteristics of Rural Policy • Agriculture -- Lowest Cost Producers • Manufacturing -- Low Cost Labor

29. NEW SOCIAL CONTRACT? • Survival of Rural Middle Class • Reducing Concentrated Rural Poverty • Sustaining and Improving Natural Environment Karl N. Stauber Ph.D. -- The Economic Review; 2nd Qtr,2001 Source: Federal Reserve Bank of Kansas City

30. NEW SOCIAL CONTRACT? • Protect and Restore Environment • Produce High-Quality Local Food • Create a Laboratory of Social Innovation • Produce Healthy, Well-Educated Citizens • Prevent Urban Overcrowding Mark Drabenstott Ph.D. and Katharine H. Sheaff -- The Economic Review; 3rd Qtr,2001 Source: Federal Reserve Bank of Kansas City

31. “CURRENT AGRICULTURAL POLICIES ACTUALLY HURTING…” • “Absorbing Vast Majority of Resources…” • “Continuing Myth That Rural and Agriculture are the Same…” • “Making it Difficult … to Develop … Competitive Advantages…” • “Higher Land Prices for Farmers Source: Federal Reserve Bank of Kansas City

32. PRESCRIBED REMEDIES • Education • Conserve Natural Environment and Culture • Increase Regional Competitiveness • Create New Competitive Advantage Source: Federal Reserve Bank of Kansas City

33. WHAT WORKS • No Competitive Advantage = No Prosperity • Create New, Don’t Preserve Old • Build Social and Human Capital Source: Federal Reserve Bank of Kansas City

34. SUCCESSFUL COMMUNITIES • Community Controversy Accepted • Schools Focus on Academics • Resources to Support Joint Risk Taking • Raise Taxes to Fund Infrastructure • Community Inclusive • Leadership Dispersed and Flexible Source: Federal Reserve Bank of Kansas City

35. WHAT DOESN’T WORK • High Levels of Class Division • Dominance By Elites • Lack of Leadership Source: Federal Reserve Bank of Kansas City

36. TAKEAWAYS • Rural Communities Are at Risk • Rural Community Leadership Critical to Success • “Smaller” is Better? • Debate has Begun • Center for the Study of Rural America http://www.kc.frb.org/RuralCenter/RuralMain.htm