Statistical analysis by researchers for the Real Estate Center at Texas A&M University confirms that the average price for a thoroughbred yearling racehorse sold at the world’s top auction is a consistent predictor of trends in Texas land prices two years down the road.
Want to predict future land prices? According to research conducted at the Real Estate Center, you might want to keep an eye on racehorses.
For three decades, Dr. Charles E. Gilliland, research economist for the Real Estate Center at Texas A&M University, has tracked Texas land prices. He recently found a link between his research and another pastime, monitoring sales of thoroughbred yearlings.
“When the financial meltdown struck in the 1980s, prices of many luxury items declined, said Gilliland. “Land investors watched helplessly as land prices dropped. Horse owners, too, saw average horse prices slide to startling new lows.”
These coincidental events suggested to Gilliland that weakened prices for horses, which are now primarily a luxury, might presage drops in land prices or vice versa.
“Analysis of historical prices for horses at the fabled Keeneland September Yearling Sale suggest that price trends for these select thoroughbreds may indeed provide a guide to future Texas land prices,” he said.
The Keeneland auction is the premier sale of prospective race horses in the world. In two weeks, buyers spend hundreds of millions of dollars. In 2009, they spent nearly $191.9 million on some 3,159 yearlings.
Similarly, land buyers scour the Texas countryside in search of trophy properties. Their reservoir of discretionary cash expands or contracts according to economic conditions.
The Keeneland sale is unique because it provides an “instant” reading of demand for luxury items.
Gilliland and Research Assistant Abhijeet Gunadekar did side-by-side comparisons of horse sales and Texas land prices from 1966 to 2009. Gilliland called the overall patterns “remarkably similar.”
Prices for both rose steadily in the 1960s and 1970s and fell in the 1980s. Both increased rapidly in the past decade. The lone deviation came in a precipitous drop in thoroughbred prices when the 9-11 attacks occurred just prior to the 2001 Keeneland auction.
“Horse and land prices show a strong statistical relationship,” said Gilliland. “They exhibit a positive correlation of 0.820, which means the two tend to move in the same direction.”
When horse prices are lagged two years behind land, the correlation rises to 0.916. In other words, the latest auction numbers indicate what lies 24 months ahead in the Texas land market.
For Texas landowners thinking of selling a tract, the news is not good. Prices for thoroughbred yearlings peaked in 2007 and continue downward. Texas land prices fell in 2009.
The price of an acre of Texas land dropped 7 percent last year to an average $2,086. The number of land transactions — 4,138 — was the lowest since 1995. Typical tract size hit 73 acres, the smallest ever recorded by the Center.
For details of Gilliland’s and Gunadekar’s research, read their article in the July issue of Tierra Grande magazine, the Center’s flagship periodical.