In an appreciating market, the ‘move up' buyers have garnered a chunk of equity in their first property.  They can then apply that equity towards a large down payment on a more expensive property.  Let's start with Day 0 where the buyer bought their starter home for $150,000.  Over the next 5 years, the property appreciates to $300,000.  BOOM, they have made $150,000.  Their family is growing and they want a bigger home.  Well, on Day 0, that larger home cost $300,000.  But guess what, after 5 years, that home now costs $600,000.  Is it even harder for the person to purchase after 5 years despite the $150,000 gain in equity in the first home?

What about an alternative scenario?  This is a scenario which hasn't really played much until recently (with select markets seeing slight downturns).  Say a first time buyer buys their first home for $150,000 again.  This time, within a year (admittedly much shorter timeframe), the market has slumped.  Their home is now worth $125,000.  But their family has grown again and they again want a bigger house.  That bigger house was originally $300,000 when they bought their first home.  But now, with an approximately 17% decrease in home value; the bigger house is now $250,000.

The actual $$ delta between the homes is 300,000$ in the ‘appreciating' market, and $125,000 in the ‘depreciating' market.  In the appreciating market, the prospective move up buyer has a large amount of equity to apply towards the new home, whereas in the depreciating market the buyer has to actually PAY to sell their first home.

Not that I'm a proponent of a depreciating market, NOT BY ANY MEANS, but since this eluded us during the boom of 2000-2005, I just wanted to get some opinions on this situation.  If you were the move up buyer, which scenario would you prefer and why?