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Oil and land have a shared trait

When crude oil prices rise, the cost for an acre of land in Texas does the same.

Over the last few years, rural land prices in Texas have been increasing, along with crude oil prices.  In 2013, the average price for an acre of land in Texas was $2,160, up nine percent from 2012.  According to the Real Estate Center at Texas A&M University, this year, land is going for about $2,345 per acre, which is also up nine percent.

Charles Gilliland, a research economist at the Real Estate Center, commented on the trend:

Technically, it’s called a co-movement … Land prices seem to follow the trends in oil prices.

With higher oil prices, Texas mineral rights owners earn more royalty on their property.  The state’s economy tends to do better altogether when oil prices rise, and those who are employed in the oil industry have more money to spend.

Yet, with oil prices decreasing, the question is: will land prices follow?  Gilliland explained how there is a slight concern, but there hasn’t been any of the transactions occurring.  As of now the Texas oil boom shows no signs of slowing down, and operations continue to move into ranch and farm land.

Mineral rights owners in the Eagle Ford Shale have begun investing some of their money in oil-poor areas, including the Texas Hill Country and ranches in New Mexico.  Gilliland commented on how there seems to be a lot of money “just floating around” in South Texas.

In West and North Texas, the interest in big ranches has faded out since the 2008 financial crisis, but that seems to have rebounded.  Oil money is going towards working ranches with livestock.

Gilliland commented on the investment strategy:

It appears that they’re essentially looking for someplace to park their money. They can’t get much return on it anywhere else.

To read the full article about oil and land prices in Texas by Jennifer Hiller of the San Antonio Express-News, click here.

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