Buying Rural Land in Texas

6 Evaluating Economic Influences and Trends

Evaluating Economic Influences and Trends 6 A tree grows between paddocks at Lane’s End Farm. Photograph by Charles E. Gilliland evaLUaTinG ecOnOMic infLUences anD TrenDs | 71 L and value arises from the configuration created by the current social setting and the resource endowments found on the land. Together they form the basis of activity that generates returns to landowners.The array of current land prices reflects a summary of individuals’ assessments of the value created when the land is dedicated to their envisioned uses. Buyers reveal their personal estimated value through their offers to buy. Presumably, those offers would extend up to the highest valuation of his or her planned use. Those individual assessments presumably also incorporate personal forecasts of value growth anticipated from projected future uses. Essentially, the market serves as a medium communicating an array of prices reflecting individual valuations by both buyers and sellers, given an anticipated economic and social environment. Before making a land purchase, potential buyers should ask a series of critical questions about current and future social and economic conditions that could affect the buyer’s ownership experience, the value of the land, and the ultimate disposal of the property. What type of economic environment is supporting current price levels? Will the local community thrive and expand into the countryside? How will in-migration contribute to future growth? Do area residents earn enough to be able to pay property taxes and keep up with maintenance costs? Will future conditions lead to higher prices or declining values? Each potential buyer must formulate answers to these and other questions as they evaluate prospective sites for purchase. To avoid the risk of harboring unrealistic expectations, potential buyers should evaluate how current and potential future conditions could affect the set of assumptions they have made about candidate properties. By consulting a wide array of resources, a potential buyer can assess the apparent reliability of their expectations. Although many in the public believe they have a firm grasp of economic developments, checking real facts can help to dispel unrealistic hopes. Examining these influences in their current configurations provides a context for today’s economic performance , while examining trends in the past can offer insight into how the parameters might vary in the future. In short, the buyer can gain an appreciation for the contemporaryeconomic context and an appreciation for which economic influences might substantially affect forecast conditions . 72 | cHaPTer 6 National and Local Conditions Local economic influences supporting various land uses depend on community employment patterns. Those patterns also depend on conditions and prospects for state, regional, and national market activity. Assumptions of a robust economy with rising values ahead may prompt sellers to hold out for unrealistic prices when circumstances point to emerging economic weakness. Buyers foreseeing a soaring economy might impulsively jump at a property, whereas a more muted forecast of future developments would likely result in more circumspect offers. This variation in forecasts affects the mix of properties changing hands. When buyers anticipate robust economic activity and strong demand for land, their emphasis is on finding something, in some cases anything, to buy. Muted expectations free the buyer to concentrate on the quality of each property in a more relaxed market environment. Thus, difficult economic circumstances lead buyers to concentrate on quality. Both buyers and sellers can tap an assemblage of information and projections to assist them in their decision making. Publications offered by the Federal Reserve Board provide a good beginning . Eight times each year the Fed publishes the Beige Book, which reports current economic conditions as seen through the eyes of bank officials and other business contacts. The report covers the national picture and includes individual summaries for each of the twelve districts in the system. Summaries of the information generally find their way into various news outlets. However, the actual publication contains many details that never reach the popular media. The full report contains a summary of current activity and trends in seven different sectors of the economy for each of the twelve Federal Reserve districts, as well as an overall summary. The report begins with a detailed description of consumer spending and tourism observed in each district. The analysis continues with narrative descriptions of developments in nonfinancial services, manufacturing, real estate and construction , banking and finance, agriculture and natural resources, employment and wages, and prices.The reports reflect interviews with local experts in each district. The information provides a...