As military lifts travel restrictions, new housing needs open up

Pandemic-related travel restrictions have been lifted on the majority of military installations, and that’s the catalyst for new lending needs within the Department of Veterans Affairs market as base transfers resume.

Just a few months ago, more than half of all installations had limitations when it came to movement between bases. They’ve now been lifted on 207 out of 230 or 90%, according to a report issued by the Department of Defense. VA lenders are reporting there’s been a relative uptick in permanent change of station assignments in response, bringing the level of activity back closer to levels seen before the pandemic.

That highlights a unique, additional source of demand that’s opening up in an already fiercely-competitive housing market that VA lenders have to solve for.

“Now that the military’s opened up after COVID, we have a lot of people that are having a rough time finding affordable or median-income housing,” said Anthony Powell, an executive vice president in the American Armed Forces Mutual Aid Association’s mortgage division.

AAFMAA Mortgage Services is addressing the issue by introducing VA loans that combine construction and permanent financing into a single closing in an outgrowth of an earlier professional networking effort aimed at encouraging home construction. AMS plans to start in Florida and then expand to other jurisdictions within the 28 states it’s licensed in. It also makes $5,000 worth of home upgrades available at no additional cost to military buyers through its networking effort.

Other lenders are prioritizing quick pre-approvals aimed at helping ensure borrowers have quick access to financing that helps them compete in bidding wars within the resale market.

“A lot of folks that are PCSing want a home that is ready to move into,” said Sam Atapour, a branch manager at Embrace Home Loans in Ashburn, Va.

In some ways, prospects for resale housing have improved because more VA borrowers are selling and putting new inventory on the market, noted Louise Thaxton, a branch manager at Fairway Independent Mortgage Corp. in Leesville, La.

“You have some people looking, but then you also have some people selling. The good news is that the travel ban’s lifting, these military service members who have been in limbo for so long are able to move on with their lives. If you're a military family, you own a home and you’re going to PCS out, it’s very easy for you to sell,” she said.

But based on an informal survey of company loan officers in consultation with real estate agents they work with, Thaxton said inventory shortages in new as well as resale homes have been a concern for VA borrowers in many markets she’s familiar with, in part due to large increases in the cost of lumber and other construction supplies in the past year. In one case, a would-be buyer in the Colorado Springs area had to walk away from a builder after being told that the timeline for a new house would be put on hold indefinitely until the price of materials went down, she said.

A further challenge lies in the increasingly frequent cases where appraisal values have come in lower than the price of the homes being purchased. In the broader market, some buyers have been making up the difference between with cash, but that’s generally not affordable for a VA borrower today, Thaxton said.

“They want you to literally pay more for the property than what it is appraised for. Not too many service members can pay that difference if they're active-duty military,” she said.

The extent to which that’s a concern for military housing markets varies by region, with a hot area like Colorado Springs being particularly challenging for VA borrowers to compete in because of appraisal gaps. The concern could grow in Louisiana as well, but it’s not as prevalent there yet, Thaxton said.

Thaxton’s branches have opted to cover lender closing costs for VA buyers to help them contend with what is an expensive and competitive housing market in many areas. Fairway allows but does not require its branches to offer this, she said.

“That can be $1,200 that the service member doesn’t have to pay,” said Thaxton, noting that lender closing costs can vary.

Adding in potential incentives like these means the big picture active duty personnel moving to a new installation need to look at today is deciding whether it’s literally worth it to invest in a home purchase in a hot market as opposed to renting, and Thaxton suggests sizing up appraisal gaps through that lens.

“Let’s say a property appraised for $190,000 and $200,000 was the price the seller wanted them to pay. If an active-duty military family is going to be selling that house in three years, they have to look at whether they’ll be getting that $10,000 back,” she said.

At press time, there had been some slight signs of cooling in the housing market but home prices were still rising.

“If mortgage rates go up, housing could slow, but I would say at this point it looks like even if that happened, it would likely be 24 or 36 months before there would be a buyers’ market,” said Atapour. “I think we’re going to be stuck with this crazy shortage of inventory for the time being.”