Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

Move-up Buyer Activity Increases

Written by Than Merrill

The progression of the housing sector has provided encouraging trends for anyone looking to purchase a property. However, the current trajectory has enabled those looking for a bigger house to avoid obstacles that existed as recently as last year. Despite the conclusion of this year’s peak selling season, those looking to upgrade their current living situation may have ample opportunities. Analysts familiar with the market believe that increased equity will allow those that already have a home to actively pursue the acquisition of a larger one in the near future.  A recent increase in move-up buyer activity may pave the way for more first-time buyers to actively participate in the market.

Previous housing sector conditions, resulting from the downturn, prevented the majority of Americans from establishing anything that resembled equity. Particularly, those who bought right before the bubble crisis were never awarded the opportunity to move up to a larger home. These unfortunate homeowners were left waiting for their properties to appreciate, as their homes were considerably under water.

However, with the current pace of recovery, approximately 18.5 million homeowners (40% of all homeowners with a mortgage) have managed to establish at least 20% equity in their property. Increases in equity have been attributed to the torrid pace of property appreciation over the first half of 2013. In fact, price appreciation rates in the first part of the year were higher than any period since 2004.

Market conditions now allow homeowners that were previously underwater to shop for a larger home.

Data on move-up buyers remains difficult to come by, but the little we know does suggest that they are increasingly becoming a bigger part of recent market activity.

According to the National Association of Realtors (NAR), first-time buyer activity has decreased, “dropping to 28% of purchases in August from 31% in August 2012, while at the same time sales have surged by double digits.” The lack of first-time buyer participation indicates that second-time buyers are becoming a bigger factor in the market.

“For a move-up buyer, the price of the house they want is going up, but so is the house they own,” said Jed Kolko,’s chief economist. Furthermore, the rate in which houses have recently appreciated provided owners with more money to put down, making them less sensitive to interest-rate hikes. As a result, they can afford to wait until the right house comes along, Kolko said.

With new-found equity, homeowners are waiting for inventory levels to increase, possibly netting them the house of their dreams. Conversely, while inventory levels remain somewhat low, there is a rather limited selection of homes for prospective move-up buyers to look at. Making matters worse for those looking to move up, are the significantly depleted levels of high-end inventory. Sales of existing homes priced at more than $1 million surged 37% in the first half of 2013 — triple the growth of the housing market as a whole — according to real estate research firm DataQuick.

While it may be hard for move-up buyers, their active participation within the housing sector is great for the economy as a whole. Their shift in living arrangements places more cheap homes on the market, essentially increasing the amount of starter homes for first-time buyers.

Of particular concern, however, is the possibility of a new housing bubble. Rapidly appreciating prices have some fearing that another downturn is eminent. As a result, more expensive states have seen move-up buyers become move-out buyers. Those that have finally managed to reestablish equity are selling and moving to another state with lower costs of living.

According to Kim Drusch of Century 21, “More are going off to the South, or to Idaho,” she said. “They are saying that the housing bust here was ‘too scary a ride for them.'”