Mobility Magazine of the Worldwide ERC, November 2018
By Lori Noble
In West Virginia, geography and rugged terrain pose physical limitations that simply can’t be changed, but the mountain highlands and low river valleys are the character and charm that make Appalachia unique. The nickname “the Mountain State” and the state motto Motani Semper Liberi (“Mountaineers are always free”) are most appropriate, and the characteristics of the region prove the statement true.
West Virginia is not unique, as it shares similar demographic and market nuances with other natural-resource economies. It is true that nearly all rural counties across the U.S. face challenges with slow to no long-term economic relief. Historically, most economic growth has occurred in larger metropolitan areas, in contrast to the West Virginia economy. The constraints observed over time are best served in the long term by fiscal responsibility and a deep understanding of the economic differences that make up the Mountain State.
West Virginia has received considerable press about the perils of coal and population declines. Coal exports were down a reported 40 percent by 2013 and nearly one-half between 2008 and 2016. Although the losses affected the state’s southern coal fields most, the energy sector is a main driver of West Virginia’s economy, and the downturn put significant strains on the economy and municipal governments. Steep declines in severance tax collections from the coal and gas industries created significant problems for government operations. On the commercial side, office buildings in major metropolitan statistical areas (MSAs) such as Charleston, the state capital, saw record-high vacancies due to big corporate bankruptcies and failures. It is also true, however, that economic performance varies extremely from county to county. The Northern and Eastern panhandles were not as affected by the downturn.
West Virginia has lost more than 25,000 residents since 2012; this is the largest percentage of loss in population since the late 1980s. According to the U.S. Census, 47 of the state’s 55 counties lost residents between 2015 and 2016. The largest decline was in Kanawha County, home of the state capital. Charleston is addressing the gray cloud with optimism, however. The capital city is the second-largest MSA in the state, behind Huntington, and the decline wasn’t the fault of the city, but a commercial downturn brought on by the collapse of coal and many companies going out of business at once. To offset the woes, Charleston is laying the groundwork for a rebranding and expansion. The development strategy is long-term planning with a time frame most likely in 2020 to 2025 in the downtown area.
Although an economic uptick is showing, the downward population trends in certain regions can’t be denied. Additionally, the population losses and exits from the labor force have helped drive the decline in unemployment rather than actual job gains. Overall, total population trends for the state will continue to contract slightly, with most losses occurring over the next couple of years. An anticipated improvement in the state’s economic performance is likely to at least help slow the decline observed in recent years.
The seasonally adjusted pace of homebuilding has been volatile over the past several years, but residential construction activity shows an upward trend since bottoming out a couple of years after the Great Recession ended. The average rate observed in the first two quarters of 2017 is 11 percent ahead of the prior year’s and marks the best read on new single-family home starts since 2008. Multifamily homes are a smaller share of the overall residential market in West Virginia, due to low population density and a high homeownership rate. Overall, apartment construction peaked in 2007 and was relatively limited in recent years. Monongalia County saw the most notable increases in recent years due to several West Virginia University (WVU) housing projects.
The rate of home price deflation was much smaller in West Virginia than in most other U.S. states after the housing bubble. Since bottoming out in 2011, prices for single-family homes have rebounded about 13 percent. Given the deep population declines and slow recovery status, the state housing sector is about equal to pre-crash conditions and values.
Local house prices vary greatly throughout the state’s regions relative to local supply and demand. According to the Federal Housing Finance Agency, the Beckley and Charleston metro areas have seen price declines in the past two years, while the Morgantown, Hagerstown-Martinsburg, and Huntington MSAs recorded cumulative price gains of just 2 to 3 percent since 2015. These low rates reflect a slowdown in appreciation after significant increases in house prices in those regions from 2011. West Virginia counties in the Washington, D.C., metro area experience consistent and fast growth in house prices. Southern counties are in a different submarket where home values are expected to remain relatively flat, with no major trends anticipated.
West Virginia shows one of the smallest annual appreciation rates nationally. Residential permits are up from the previous year, mostly in metro areas. Home prices depreciated in the spring but are up year over year. Mortgage delinquencies are down from the previous year. Overall, small but distinctive positive shifts are occurring, with trends expected to proceed at a slow pace.
Expectations for the U.S. and global economies will directly influence West Virginia’s economic performance. If global demand for the state’s energy commodities and manufactured goods deviates from the expected path, growth could exceed or underperform expectations. Natural resources are expected to see jobs increase 9.6 percent per year during the outlook period.
West Virginia’s construction sectors are expected to slowly recover from lackluster performance in the past several years. Activity is expected to grow at the fastest pace between now and 2020. The energy sector will drive most of the growth with several pipeline projects and natural gas-fired power plant that are expected to wrap up in the short term. Infrastructure has been depressed for an extended period due to budget challenges. Manufacturing is expected to show job growth of about 0.9 percent per year. The largest sources of job creation are expected in the chemical industry and general manufacturing sector. Income projections forecast an increase in annual wages of almost 2 percent per year through 2022 but still lag behind the national average.
There has been an upturn in recent coal production and job levels as the industry enters a period of relative stability. However, risks exist, as observed between 2008 and 2014. West Virginia’s population has declined significantly, and although a stabilization is anticipated, more loss is likely over the long term due to a larger share of elderly residents. A positive shock of inward migration would be highly beneficial, as would economic strategies to improve education and business retention in the state. Southern counties are expected to see some job growth during the next few years.
Commercial expansion outside the energy sector will bolster performance going forward. The $500 million Procter & Gamble facility in Martinsburg will continue to develop. The expansion by WVU Medicine as well as a buildings and athletic facility upgrade will help the Monongalia County region. WVU Institute of Technology also opened a campus this fall in the Beckley MSA, putting the university back on the map and making a great addition to the city’s landscape.
Lori A. Noble is a professional appraiser and consultant in southern West Virginia and member of RAC (Relocation Appraisers and Consultants). She can be reached at +1 304 573 2357.