Charting Columbia’s Economic Downturn
Banker finds surprises in annual econmic review
For Columbia and Boone County, 2007 “will go down as the most challenging year economically in 25 years,” veteran banker Jeff MacLellan said during a forum organized by the Columbia Business Times.
MacLellan, who has compiled and analyzed local economic indicators every spring since 1987, said that after several years of overbuilding, Columbia has experienced seven straight quarters of decline in the local housing market.
“This community has really gone through a huge adjustment,” he said.
With more people losing their property because they can’t make mortgage payments, MacLellan added a new category to his analysis this year: residential and commercial foreclosures. There were 231 foreclosures in 2007, and, based on data from the first three months, MacLellan predicted that the number of foreclosures this year will top 300.
MacLellan, chairman of First National Bank’s holding company, said the anemic residential real estate market has been the main drag on a local economy that continues to be fundamentally strong.
“The rest of the economy didn’t do too badly,” MacLellan said at the end of a presentation to a group of business, government and university leaders on April 21.
There was a big jump in population in 2007—and a healthy increase in jobs. “This kind of surprised me,” MacLellan said. “All I heard was a tale of woe in this community, yet the number of jobs actually grew by 1,200.”
Columbia also saw a slight increase in city sales tax revenue (an indication of retail activity), a rise in licensed businesses, and jumps in enrollment at public schools and the University of Missouri.
MacLellan and several other participants in the forum said they think the housing market has hit bottom and predicted it will take a year or more to rebound.
“Quite honestly, I was disappointed in the first-quarter numbers,” MacLellan said. “What concerns me is that this continues to drop.”
Based on lower-than-expected housing sales in the first three months of 2008, MacLellan said the number of single-family homes sold this year will be 1,662 “if the trend continues.” The peak was 2,900 in 2005. Residential building permits probably will drop to about 464 in 2008—down from 743 in 2007—if that trend persists, he said.
“Jeff’s information seems to confirm that we are nearing the bottom,” Jim Bornhauser, a senior vice president at Boone County National Bank, said after the presentation “As was discussed, now Boone County’s economy more closely mirrors national trends, so if you use that logic, we might see more declines. Using recent sales data, the absorption time for homes and condos is lengthening, which might make one believe that we have not ‘cycled’ through this ‘bubble.”’
Robert Wolverton, owner of R. Anthony Development, said he agreed that the residential real estate market “has reached its bottom and is now at a sustainable level. Homes that are well presented and competitively priced are moving.”
City Manager Bill Watkins predicted that the real estate market could turn around by spring of 2009. But Todd Culley, CEO and general manager of Boone Electric Cooperative, had a more pessimistic prediction.
“Based on current and planned construction activity levels we are seeing throughout our service territory, I am more inclined to believe a full recovery will occur around mid-2010 or so,” Culley wrote in an e-mail after the presentation. “Typically, I would expect to be hearing about ‘next year’ construction plans at this time; however, it has been fairly quiet in those regards. For 2008, we budgeted for about half of the new home starts we experienced in 2007. Year to date, our actual growth has been about half of what we budgeted.”
MacLellan and other participants in the forum pointed out that consumer confidence is low, which also hinders growth.
“Right now everybody is hunkered down,” MacLellan said. “There is a lot of uncertainty, and that means people are postponing big purchases. We need some good news in this community to turn that psychology around.”
Culley said, “With consumer sentiments at near-record lows and fuel prices at or near record highs, it may take some unexpected and positive news to change the current national and state economic perceptions most consumers possess today.”
Watkins gave a “C+” grade to consumer confidence.
Bornhauser said, “Ask any small business owner what he or she is seeing, and they will tell you that consumers are being very careful with their spending. I think everyone is feeling their way through $3.50 to $4 gasoline prices and increasing prices at the grocery store.”
However, MacLellan and other participants also said the area is poised for significant economic growth, primarily because of University of Missouri initiatives to develop and recruit high-tech companies to the business incubator and the Discovery Ridge research park.
“I see more potential now than I’ve ever seen,” said MacLellan, who began working at First National Bank in 1985. “The fundamentals are lined up better today than perhaps they ever have been. We still need to make it happen.”
Power Lunch Participants
• Bernie Andrews, president, REDI (Columbia Regional Economic Development Inc.)
• Jim Bornhauser, senior vice president, Boone County National Bank
• Todd Culley, CEO, Boone Electric Cooperative
• Dan Kliethermes, president, Kliethermes Homes & Remodeling
• Nikki Krawitz, University of Missouri System vice president for finance and administration
• Teresa Maledy, president, Commerce Bank, Missouri region
• Jeff MacLellan, Chairman and CEO, The Landrum Co.
• John Ott, downtown property owner and developer
• Marty Siddall, outgoing chairman, Columbia Chamber of Commerce
• Bill Watkins, city manager
• Rob Wolverton, owner, R. Anthony Development
• Tony Richards, ceo, Word Marketing
• Michelle Mountjoy, vice president, Word Marketing
Some key findings on changes in Columbia’s economy from 2006 to 2007
• Columbia’s population jumped from 93,219 to 96,128, an increase of 2,909. Annual increases in the past two decades averaged less than 1,500.
• The Boone County unemployment rate rose from 2.9 percent to 3.5 percent.
• The number of jobs in Boone County rose from 93,900 to 95,100.
• Public school enrollment rose from 16,951 to 17,209.
• Business licenses issued by the city increased from about 4,800 to 4,900.
• Residential building permits rose from 559 to 743.
• Housing sales dropped from 2,979 to 2,300.