As coffee shops across Texas reopen, talk will center on the effects of the pandemic on the economy. Closer to home, my conversations with friends and clients often focus on how Covid will affect ranch prices. A common hope among sellers is that it will have little effect while among buyers, the hope is for catastrophic reductions.
Ranches are for the most part toys, toys bought with disposable income earned in a field other than agriculture. Contractors, doctors, lawyers, and entrepreneurs being the ranch buyers today, what effect will Covid have on their incomes? With the exception of those in the oil industry, I sense that there are still buyers out there. I talk to them daily, but there is a hesitation, a “wait and see” attitude because of Covid. Will the pandemic result in a significant reduction in ranch prices?
While I have seen some price reductions, there have not been any major reductions and I have yet to hear of any foreclosures. I make no claims of prescience and the old crystal ball needs batteries, so let’s look to the past for some idea of what the future holds.
Above is a graph from the Real Estate Center at Texas A&M depicting rural land prices in South Texas from 2008 to 2019. It shows that following the major economic crash of 2008, land prices did in fact drop, but only about $200 per acre. Note also that the drop was followed by significant increases in price, increases that have over the subsequent ten years increased land values by almost 100%, from $2,000/ac. to $4,000/ac.!
My take-away from this is if the Covid pandemic affects land prices like the crash of 2008, land prices will not decrease by much, if at all. It makes more sense to play on the fears of the sellers to negotiate a better deal. You can wait it out and see what happens, but selection is good now and buyers willing to commit are few, leaving the playing field open for that intrepid buyer ready to move on a new ranch.
