The Housing Market’s Troubling Lack of Move-Up Buyers

As Ryan pointed out, the new figures on March home sales weren’t great — but they weren’t entirely awful, either. A small but growing number of metropolitan areas could be seeing a bottom to the housing market crash.

While that’s encouraging, one trend that Calculated Risk has been writing about for a while now doesn’t seem to be getting any better — the lack of move-up buyers. Those are homeowners who sell their current abode to buy another home, maybe one with a bigger yard, or extra bedroom, or nicer kitchen.

Those buyers aren’t moving up the way they used to. Most of the action in the housing market involves first-time homebuyers and investors snapping up foreclosed homes are fire-sale prices. More expensive homes in the mid to high-priced range aren’t selling nearly as well, meaning the people who own those homes aren’t going anywhere. The usual trajectory of the housing market — a first-time homebuyer settles in, accumulates equity, buys a second and often more expensive house — is interrupted.

CR cites this explanation from The San Francisco Chronicle:

In a normal real estate market, about 80 percent of buyers are “moving up” or “moving across” – people who sell one home before buying another, said Mark Hanson, principal of Walnut Creek’s the Field Check Group, a mortgage consultant. Remaining purchasers are split between first-time buyers and investors.

In today’s market, about half of buyers are first-timers and a third are investors, leaving just 15 percent of what he calls “organic” buyers. Those first-timers and investors all troll for bargain-basement foreclosures – leaving few buyers who are interested in the homes being sold by “Ma and Pa Homeowner.” That, in turn, leaves Ma and Pa unable to move up to a nicer home. “The organic seller is left out in the cold,” he said.

It also could impact supply down the road, when all those pent-up sellers finally decide to put their homes on the market.

If you want to know if and when the housing market is going to recover, it’s useful to also keep a close eye on what happens to move-up buyers. Until they’re moving up, the market probably isn’t going to be picking up anytime soon, either.