State of the Market

Feb 6, 2024 | Hall and Hall
State of the Market

Read within the Year in Review

2023 RECAP

Last year’s annual report described “…what we believe will be a more traditional and challenging market in 2023.” Looking back at 2023, we can say that our market behaved as expected but delivered better than anticipated results.

Low inventory and record-high pricing across all geographies presented headwinds to transaction volume. Most property owners considering selling had done so in 2021 and early 2022, taking advantage of the explosive market environment. Those wanting to sell in 2023 were reluctant because of the lack of replacement property inventory. In some cases, rapidly rising interest rates made securing new or replacement financing increasingly unattractive. The result was inventory primarily comprised of sellers exiting the market rather than trading in the market. Generational drivers such as retirement without younger family members to take over the farm or ranch, or asset consolidation for estate planning purposes were the most common reasons for premium properties coming to market.

The surprising aspect of 2023 was that while transaction volume declined, the total dollar volume of our transactions increased. There were fewer sales, but on average, much larger sales than in 2022. Our data indicates the number of closed transactions was similar to 2019 (pre-COVID land rush levels) and roughly half of 2021 (the height of the post-COVID frenzy). However, the total dollar sales volume in 2023 exceeded all other years except 2021, making 2023 the second-highest sales by dollar volume in our history.

The top-weighted market was driven by the wealthiest land investors, who continued to pursue the highest-quality, premium amenity properties. Many of these transactions were private sales exposed to a limited audience of qualified buyers. Astute investors differentiated between best-in-class and second or third-tier properties, with quality commanding a premium. In contrast, less unique or less special properties sat on the market.

While quality remained a key criterion at the lower price points, activity was generally more depressed than at the upper end. Buyers were more affected by the rise in interest rates, increased costs of ownership, and higher market pricing.

High demand for auction services continued in 2023, with auctions performing well and often realizing record sales values in a wide variety of regions. Increased building costs and the unavailability of quality architects and general contractors resulted in fully developed, turnkey properties commanding a premium. The attractiveness of the Plains states (agricultural production) and other “more bang for your buck” markets continued, as in some regions, record pricing pushed buyers further out from metropolitan areas in search of value.

Looking Ahead to 2024

The closing chapter of 2023 includes a list of challenges and uncertainties- higher interest rates, general economic uncertainty, global conflict, and the presidential election, to name a few. It has been a couple of decades since we have operated in an environment with attractive, risk-adjusted alternatives for cash beyond equity investments. Where rates trend in 2024 will be a key driver of asset allocation.

As long as uncertainty looms, we anticipate buyers will demonstrate less urgency and greater price sensitivity. Sellers in our market are rarely pressured to sell and they have recent sales data to support pricing. As a result, we expect price negotiations to test values, resulting in increased bifurcation of sales volume and prices between elite, high-amenity properties and those with marginal amenities or significant impediments. As always, best-in-class properties are resilient because of their irreplaceable nature. Less motivated buyers are more easily dissuaded from purchasing, so significant flaws or encumbrances on properties make them harder to sell.

While caution is prudent, the Federal Reserve’s mid-December announcement of future rate cuts spurred optimism in the real estate and equity markets, boosting activity at year-end. Increasingly positive sentiment over cooling inflation and stable to falling interest rates could become a significant driver, leading to increased transaction volume.

Another notable, ongoing trend is the interest in safe haven purchases. Safe haven purchasing can manifest in physical relocation, which intensified with COVID-19 in late 2020, and more traditionally in financial diversification to or concentration in secure assets such as land. Security and finiteness are among the most attractive qualities of land ownership that come into greater focus during times of instability.

After 77 years and through our full array of real estate services, including sales, lending, auctions, and management, Hall and Hall has been dedicated to developing resources and relationships that benefit our clients. Our employee ownership and brokerage structures ensure commitment to our customers in a long-term advisory capacity through the collective, vested interests of our team. If you have any questions about our services, we encourage you to reach out.

Best wishes in the coming year, and we greatly appreciate your continued support.

B Elfland
Managing Director