Aug 16, 2010
The report sites: 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. 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.