Banker’s annual review charts dip in parts of economy

While Columbia’s overall economy is healthy, last year the city experienced steep declines in the housing and construction markets, which will continue to be stymied by excess inventory, a leading banker says.

Fueled by years of low interest rates, builders set a pace that was too brisk to sustain, said Jeff MacLellan, chairman of the Landrum Co., First National Bank’s holding company.

In the long run, what is happening now is healthy for the local economy because it “got too easy” for developers to borrow and build, MacLellan said.

“The market needed an adjustment,” MacLellan said in a conference room next to his office on the top floor of the bank building at Broadway and 8th streets. “We’re somewhere in that adjustment period now. I don’t know where we are or how much longer it’s going to last.”

He said Columbia holds too many empty residential and commercial buildings, and more are being constructed.

“I worry a little bit about that,” said MacLellan who has charted and analyzed local economic indicators every spring since 1986. “There is an awful lot of multi-family housing going up.”

Another relatively new and worrisome trend, MacLellan said, is the entrance of developers from outside the area who use outside financing, primarily to construct multi-family housing.

“These players don’t understand the market and could complicate it for local developers and banks,” MacLellan said.

MacLellan said he has been told that of the nearly 500,000 square feet in retail construction completed in the last few years, about 245,000 square feet of it is vacant.

“It means we have overbuilt, and it means we will have to absorb that capacity, and that will take some time,” MacLellan said.

But interest rates remain relatively low, MacLellan pointed out, and looking at the big picture, all but a few of the measurements of Columbia’s economy were positive, including those related directly to commercial activity, such as retail sales and the number of licensed businesses.

“Overall, it was a mixed year for the Columbia economy and, honestly, probably the first mixed year in the last 20,” MacLellan said.

“As you look at these charts, there are not many years where lines were going south,” MacLellan said. “Last year, you had two of them going way south.”

Comparing 2005 and 2006, the number of single-family detached home sales fell from 2,900 to 2,278, a decline of more than 20 percent.

Single-family home sales actually rose 14 percent in the first quarter of 2006 before dropping 11 percent in the second quarter. Then sales dived first 37 percent and then 43 percent in the last two quarters.

“That’s when the housing market really shut down, in retrospect,” he said.

The number of residential building permits fell from 1,426 to 898, nearly 40 percent. Included in these numbers, permits for single-family detatched homes fell 45 percent, from 1,003 to 558.

“Residential building permits kind of fell off the cliff,” MacLellan said. “While that is painful for a lot of people, it’s going back to a more sustainable, normal environment.”

To demonstrate his point, MacLellan walked up to the large plasma screen showing the charts used in his PowerPoint presentation and drew an imaginary line from the first year he started compiling numbers, 1985, to the most recent, 2006.

“If I had a yard-long ruler, you would see a straight line moving up,” he said.

Also, the overall value of commercial building rose, primarily because of significant increases in the cost of materials and some relatively large projects.