Mike Brooks, the city’s new economic development director, and Mike Downing, director of Connecting Our Regional Economy, or CORE, told forum participants that the city needs to nurture homegrown businesses because their health is critical for economic growth.

“In most communities, 80 percent of your new jobs will come from existing employers,” Brooks said. “They don’t come from the attraction projects. A lot of time attraction projects come in with a small number of jobs, and over the years they will develop and become retention and expansion projects.”  “The most important part of economic development is keeping your existing businesses thriving and happy,” Downing added.

Kristie Ray did acknowledge that that the City Council made a business-friendly decision recently by allowing property tax breaks known as Tax Increment Financing to be used for the renovation of the historic Tiger Hotel and for the construction of a multi-story, multi-use building downtown.  And Ray was careful to exclude the two City Council members participating in the lunch forum, Laura Nauser and Jason Thornhill.

Left to Right: Rob Wolverton, Rick Gohring, Bruce Hackmann and Gary Meyerpeter.

Rob Wolverton, president of R. Anthony Development, said the words that might best describe the residential real estate market are “uncertain” and “fragile.” But the market analyst also finds confidence in Boone County’s relative stability.

“I feel like we’ve found our bottom,” Wolverton said during CBT’s Aug. 27 Power Lunch on Economic Development, where he outlined his mid-year real estate market report. “We’ve found our stability, and we’ll just kind of bump along for a little bit.”

Wolverton said the market for new construction “has suffered tremendously” and estimated there will be no more than 200 building permits issued this year, compared with about a thousand in 2005, and in 2006, an 80 percent decline.

“The compounding affect is when we have fewer building permits and we have less fees being paid to the city of Columbia to support our public works department, less construction building materials being sold and less sales taxes.”

Wolverton warned that there are “problems on the commercial side of the industry now,” exacerbated by tougher lending regulations. “Last year there was a fallout in the mortgage industry; this year we will see some fallout in the commercial side.”

The following is a condensed version of Wolverton’s report analyzing the real estate market in Boone County at the mid-year mark:

The Boone County residential real estate market peaked between the years 2004 and 2006 at unsustainable levels. The market began its correction in July of 2006, and we have now endured three consecutive years of downward correction. This leads to the following three questions:

1. Is our correction over, and have we stabilized?
2. Is today’s market the new reality from which we need to base our projections?
3. Or, have we corrected to a level that is less than what can reasonably be sustained and we are poised for the market to increase over the next few years?

First, the fundamentals of our overall market have remained steady in some areas, but have eroded in the most critical statistic regarding home sales, and that is unemployment. The national unemployment rate has gone from 5.5 percent at this time last year to over 9 percent today and appears to be heading north of 10 percent. State unemployment was 5 percent at this time last year and is also above 9 percent. The Boone County unemployment rate as of the end of June (per the REDI Web site) was 6.8 percent as opposed to 3.5 percent at that time last year.

Home sales for the first half of the year are interesting and open to many interpretations. We sold 703 single-family detached homes through the Columbia Board of Realtors Multi-List System in the Columbia Public School District. In 2008, we sold 843 for the same period, which is a decrease of 16 to 17 percent in total sales from 2008 to 2009. New-construction homes sold in the same area for the same time period were 86 for the first half of 2009 as opposed to 137 for the first half of 2008, which represents a 37 percent decrease.

The answer to the first question is that our residential market has stabilized. Our total sales are down, but our inventory seems to be following the sales down. New construction home inventory is very solid, with less than 100 homes available, which is down from over 400 in our peak years.

The pre-owned market is a little overstocked, but such that, with one or two good months in a row, it will be very healthy. The two major threats to the residential market are unemployment and inflation. Tighter lending standards that have been imposed over the last 18 months knocked some buyers out of the market. Rising unemployment has knocked more out of the market. If we encounter significant inflation, which appears to be a near certainty at this point, even more buyers will be removed from the market. My view continues to be that a natural level of home sales per year in Boone County when the market is healthy is 1,600 to 1,800. We will very likely not achieve anywhere near that number for this year.

The answer to the second question is that I believe what we are experiencing is our new reality for the next year to 18 months. There is still significant uncertainty in the market, which has a negative influence on home sales. Thankfully, the stock market has begun to show signs of life, which is very positive. However, I personally believe there is another meltdown in one of our markets in store in the near future. Last year we saw the mortgage market undergo tremendous change and we saw the stock market plummet. Both of those markets seem to have stabilized. This year the commercial capital market is under tremendous pressure, and there is tremendous change under way.

The answer to the third question is that the market has corrected to a level that is below what I believe to be natural demand. I do believe we are creating a tremendous level of pent-up demand for homebuyers. Some growth in population has occurred, and student enrollment is up for yet another year. This bodes very well for the residential rental market and creates demand in the entry-level buyer market. I believe the lion’s share of our growth is students and people from some of the smaller agricultural communities that have little, if any, opportunity for the kids graduating from high school who do not want to go to college. Again, this creates bottom-up” demand, which is very good. It appears this demand fizzles at around the $300,000 home mark. The bottom line is that I see at least another 24 months before the pent up demand that has been created from September of last year to now is unleashed.

The big picture of our residential market in Boone County has shifted significantly in the last 12 months. Our level of sales is down along with our level of supply. We are still badly overstocked. However, our demand at this time last year was greater than the demand today, which has the net impact of increasing the number of months supply available. I do not see that there will be demand for any new residential development for the next 24 months, if not longer. If there is new construction in any residential market for the next 12 months, it will be in the rental market.

The commercial markets are extraordinarily difficult. Tougher lending practices and pressure from bank regulators has dramatically decreased the amount of capital available in the commercial lending markets. We are in the midst of a major correction in this market, and no one knows where the bottom of the correction lies. What we do know is that this correction at the national level absolutely trickles down to us at the local level and is having a major impact.

My view today is that the next six to eight months is critical to our overall economy in general and equally critical to our local real estate market. If we can avoid the loss of a major employer and avoid any further deterioration of our national markets, we will slog along for another year as we are doing today.