With the elections behind us, I thought I’d take a moment and bring you up to date on the ranch market AS I SEE IT.  As you may well surmise, with the mortgage meltdown, the ranch market slowed and then stopped.  Buyers that were actively looking have backed off with comments like, “I’m going to wait and see what happens.“ or “I’m not sure of the future right now with my business, I better wait.“  Now, with the bailout and a new President in place, what will the ranch market do?

Ranches in South Texas that have been sold in the last 25 years are basically recreational properties.  I have never sold a ranch in that time to a buyer for the stated purpose of making a profit from livestock or farming.  Very few have had any interest in agricultural operations at all, except for how that might affect the hunting.

Buyers, in my experience, have been mostly from the construction trades.  It seems that ranches in the last 25 years have been bought primarily as “toys” for those men in the construction industry.  Perhaps they enjoy the outdoors more than office types or come from backgrounds where hunting is more prevalent.  At any rate, a large segment of those ranches bought with my help in the last 25 years are held by people who may be feeling the economic pinch more than others.

Lastly, South Texas ranch real estate is bought primarily by people from the San Antonio or Houston areas who drive to the ranch.  Gas prices affect this market.  Just before the market died, I noticed an increase of buyers looking for properties within a certain distance from those metropolitan areas as opposed to the old days when they all wanted to be in the “golden triangle”.

What does this mean to you either as a potential buyer or seller in South Texas?  First of all, as of today, there has been no noticeable effect on the asking prices in South Texas that I perceive.  I believe this will change as the housing industries in both S.A. and Houston continue to near the end of their surpluses.  Contacts within the S.A. industry tell me there are perhaps two months of housing contracts remaining, then nothing.  Also, as new houses are not selling, the purchase of raw land for development is down.  New development feeds the 1031 exchange market as mom and pop (or their heirs) sell the suburban farm to developers, and this 1031 money has kept ranch prices up.

Some of those in the building/development trades will be forced to sell their ranches.  This in turn will depress market prices for all sellers.  How much and for how long depends on the housing market recovery, but I think it could cause a drop of as much as 50% in ranch prices.  In the 1980s, ranch prices adjusted 75% in some cases with many ranches sold by lenders after foreclosure.  I think this may occur in some instances, but not to the degree it did then as lending in the ranch market today is tighter than in the 1980s.

What this means to us all is that we are entering a period of unknown length where buyers will be waiting for the bottom and sellers will be chasing the market downward.  Deals will be made and good buys will occur, but I personally do not see a return to normal market activity for at least six months.