CLARKSBURG — The housing market in West Virginia is still especially hot, according to mortgage experts.
“I would say the general state of the housing market specific to West Virginia, as well as most of the United States, is it’s still pretty hot. Surprisingly so, maybe for some,” said Adam Gunn, Huntington National Bank’s mortgage lending business manager for several states, including West Virginia.
“Our members are reporting that the increase in interest rates really have not had an impact of slowing down the housing market yet. I want to emphasize that ‘yet.’ What I’m hearing is that the housing market in West Virginia remains strong, primarily due to the lack of inventory,” said Sally Cline, president and CEO of the West Virginia Bankers’ Association.
High demand with low inventory remains a huge factor in keeping prices high, officials said, although recent lifestyle changes have caused some increased demand as well.
“It really comes down to raw demand. There’s probably a number of factors. … There’s been a movement from a very in-person work world to a far more virtual work world. People have the ability to work in hybrid situations or even in fully remote situations they didn’t have before, which is allowing for a lot of the folks in the U.S. to change where they live. So we’re seeing some migratory patterns,” Gunn said.
“(The pandemic) forced a lot of lifestyle changes — people opted to work remotely, people are moving out of the Washington, D.C. metropolitan area and finding housing in West Virginia. That saw an increase in the buying and selling activity, which of course drove up home prices, particularly in certain pockets of our state. Morgantown’s another very, very hot market in West Virginia,” Cline said.
Staying at home more frequently also has prompted some homeowners to work on their homes.
“I think another part of it is, frankly, everybody’s been looking at the same four walls for a while. So we saw a big uptick in renovation and a lot of uptick in rehab over the past couple years,” Gunn said.
“It’s also created the opportunity for some people to say, ‘You know what? I don’t want to fix up these four walls anymore. I want a new set of four walls.’ So that’s created an increase in buyers that are out there. But the other side of the coin is supply,” Gunn said.
While rate hikes from the Federal Reserve should eventually force the housing market to cool off, so to speak, the rate increases are a double-edged sword that is knocking some first-time home buyers out of contention.
“From the lenders’ perspective, we’ve seen a sense of urgency, to a degree, from our applicants to find that house, to get the contract signed, to get their rate locked in — to get to closing, really, so they don’t suffer any more increases of rates,” said Jon Rogers, senior division manager for single family lending with the West Virginia Housing Development Fund.
“There’s also a real concern about folks that have been pre-approved. The applicants that are doing this the right way, in my opinion, get pre-approved with their lender. Of course, 60 days ago, that pre-approval was at a different interest rate. So when they come back and they’ve found their house, there are real concerns about if they’re still approvable,” Rogers said.
When the interest rate changes, pre-approvals can become void due to byproducts such as higher monthly payments.
“The interest rate has obviously changed what their payment is going to be on the same loan amount,” Rogers said. “Sadly, this interest rate increase has knocked people out of being pre-approved and knocked people out of buying a house that they thought they could buy — or … that they knew they could buy before the rates increased.”
“Interest rates are going to impact affordability. I might sound a little bit like a broken record here, but as interest rates go up, it becomes less affordable to buy a home,” Gunn said.
Changing interest rates are causing locked rates to expire and deals to be called off if compromise can’t be found — something that first-time home buyers are not typically accustomed to.
“We’re on the phone every day. … We’re looking at expirations of rate locks. … I’m looking at dozens of deals where if I can’t find a way to keep the interest rate locked in, many of these people are going to lose the houses that they thought they were going to buy,” Rogers said.
“The bulk of our business and our mission is first-time home buyers, so most of those folks have never seen anything like this and have never seen an increasing rate environment. That’s also true of a lot of Realtors and lenders who don’t have a couple of decades or more in the housing finance business. They’ve never seen anything like this either,” Rogers said.
One lender who does have a couple of decades or more in the housing finance business is Marcia Blount, a mortgage loan officer with WesBanco with 35 years of experience, but the steep increase in rates is still surprising to her.
“When I first started — I’ve been doing this for 35 years — I was giving out 11s and 12s. If you could get anything below 10 — my first house loan with WV Housing Development was 8.5 and that was great. Right now, we’re at 5,” Blount said.
“I’ve never seen (rates) rise so fast in such a short period of time in all the years I’ve done this. Normally they keep pushing and pushing and pushing, but this was in two or three weeks that we went from 2s to 5s. It was like overnight,” Blount said.
Blount agrees that increased interest rates have made houses much less affordable than before and has resulted in overpaying.
“Before, the rates were in the mid-2s and the 3s. For example, someone that could afford a $400,000 house with those interest rates, now they could only afford a $200,000 house,” Blount said.
“Inventory is low, so people are bidding like crazy on houses. They’re overpaying or coming with cash deals and bidding above. In West Virginia … if they’re bidding above the asking price, there’s such a small market of people that can do that. First-time home buyers can’t do that, so they’re kind of pricing first-time home buyers out of the market,” Blount said.
Being a strong seller market, houses are often being listed above their appraised value.
This has caused appraisal gaps, which require more money from the buyer.
“(Something) that we’ve seen from a seller perspective is we’ve started to see appraisal gaps. Appraisal gaps are pretty common in some of the hottest markets out there, but now we’re seeing them everywhere from where somebody’s willing to buy a house at set price even if the property doesn’t quite appraise for it,” Gunn said.
“The bank lends on the lesser of the two — the appraised value or the sale price. So if you’re buying a house for $300,000 and it appraises for $250,000, you have to make that $50,000 up plus have a down payment on top of that. There’s not a lot of people that can do that,” Blount said.
While experts believe the market will eventually stabilize into something a bit friendlier toward buyers, it’ll take time and will be difficult for buyers in the meantime.
“Like everything, it’ll correct itself and work itself out. But when you’re used to what we’ve just come out of for the last 10 years, this is hard,” Blount said.
“If rates continue to rise … people won’t be able to pay the combination of both high prices and the higher interest rates on the mortgage. That’s probably going to drive down home prices and create more of a buyers’ market eventually. It’s going to take some time. But the inventory definitely has to get larger in order for it to become more of a buyers’ market,” Cline said.