Reluctant "Move Up Buyers" May Slow Housing Recovery

Mortgage and Lending with American Financial Resources

Nice home at duskConsidering the current record low interest rates and high affordability of real estate due to lower home values, the housing market should be booming. Instead, NAR recently reported that the inventory of for sale homes is down 24% from July 2011. Many real estate pros feel that this drop is due to the stalemate position of move-up buyers. The move-up buyers are those who bought homes with plans of "moving up", and now find themselves in a negative equity situation. Many that fall into that category also fall between the cracks when it comes to finding help from either a mortgage lender or federal agency.

In an interview with CNBC, Jason Royal of south FL, a homeowner in just that position, had this to say, "Because we've been current on our payments and have never been late or missed one, we don't qualify for any of these short sales or any of these special programs to help underwater borrowers."

CoreLogic estimates that around 11.4 million borrowers are currently in a negative equity situation. In terms of residential properties with a mortgage, that translates to 24 percent. Of those borrowers, approximately 2.3 million have less than 5 percent equity, which is known as "near" negative equity.

Mortgage analyst, Mark Hanson explained to CNBC that most move-up buyers will need about 20% equity in their current home to move up. He further noted that by his calculation, there are close to 25 million borrowers who do not have that level of home equity. Based on his research, it is not surprising that the Mortgage Bankers Association stats show that applications to buy a home were down by 6% from last year's figures.

Many market watchers cite the immobile move-up buyers as the wrench in the works of the housing recovery. Apparently, they are taking a "wait and see" approach before committing to any more home purchases. With all that being said, there appears to be some major improvements in the residential housing market. Back in May, the S&P Case Shiller Composite index showed that home prices improved in 18 of the top 20 markets surveyed. Home builder confidence is also at the highest level in the past five years.



Comments (22)

Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

To trade-up or even spend money, one must feel good about what they are doing. Morale boosts would help a lot...thank u

Sep 24, 2012 11:01 PM
Anthony Daniels
Coldwell Banker - San Francisco, CA
SF Bay Area REO Specialist

With such tight inventories, leading to multiple offers, buyer frustration has reached record highs.

Around here, many are taking a "time out" from their home search, knowing that interest rates will remain low for at least another year.  They may begin again next spring.  We'll see how it all plays out.

Sep 24, 2012 11:38 PM
Kerry Lucasse
eXp Realty - Urban Nest Real Estate Group - Atlanta, GA
Your Urban Nest Atlanta Real Estate Consultant
Our inventory in Atlanta is really low and it's been a great challenge trying to get a stable of listings! 24% is really a BIG drop, so I'm so thankful that you shared this information!
Sep 24, 2012 11:42 PM
Harry F. D'Elia III
RentVest - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

There has to be away to unleash these buyers into the market with the assistance from the Government.

Sep 24, 2012 11:49 PM
Athina Boukas
Virginia Capital Realty - Richmond, VA
Certified Residential Specialist (CRS)

My own neighborhood doesn't have foreclosures or underwater mortgages. But, sellers are still staying right where they are.  Nothing has come on the market in our community for the past two years. Even then there was only one sold or for sale in the past 4 years!  

No one wants to "move-up" to more taxes and homeowner costs when they feel their home won't appreciate, or, that they may lose their corporate or public service sector job.  

So besides negative equity, there's the negative outlook that keeps even able homeowners stuck where they are.  This compounds the problem of low inventory and lack of move-up buyers.

Sep 24, 2012 11:50 PM
David A. Weaver
Peoples Bank & Trust Co. - Scottsdale, AZ
24 years helping folks finance their dreams.

Don't forget those pesky Debt to Income Ratio's.  Pretty simple math.  Generally 28/36 for conventional, 29/41 for a Govie.  So how much house you can buy is equal to a PI payment of roughly $280 bucks per thousand earned.  By the way how are wages doing in your area?  Just saying.  If we don't have folks who can afford to buy the "Move Ups" home we are still in trouble.

Sep 25, 2012 12:26 AM
Ben Gerritsen
Mortgage Miracles Happen, NMLS ID: 1289680 - Ogden, UT
Mortgage Loan Originator

Move up buyers as a whole are staying put and rather refinancing or doing loan mods or grunting out higher payments if they can't do either of those two options. Then some are turning into renters. This leaves a select few to be the move up buyers.

Sep 25, 2012 01:14 AM
MaryKay Shumway
The Kellstrom Ray Agency, Inc. (Est. 1948) - Sister Bay, WI
Door County Wisconsin's Real Estate Expert

My crystal ball is broken as to interest rates, but our area has been shaken by low sales, lack of comparables, and homes not appraising out.  We still have an inventory glut, so it's a great time to be a buyer in Door County, Wisconsin.  Not a terrific time to be a seller.

Sep 25, 2012 02:10 AM
Gary Frimann, CRS, GRI, SRES
Eagle Ridge Realty / Signature Homes & Estates - Gilroy, CA
REALTOR and Broker

I agree with Lenn above-- some people are holding on because they are underwater, but the market is improving rapidly here in Silicon Valley, and with an increase in prices, people are getting their equity back.

Sep 25, 2012 02:58 AM
Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Experienced Agent in Kansas City Metro area

I totally agree-- I have several clients who would like to move that bought just before the crash, they are stuck for now.

Sep 25, 2012 04:41 AM
Nancy Conner
Olympia, WA
Olympia/Thurston County WA

I'm also seeing those who would like to move "down" into smaller homes as they near retirement - and feel stuck in their larger homes where values have not yet rebounded much. 

Sep 25, 2012 05:08 AM
Nan Jester
Exit Real Estate Gallery Jacksonville Beach, FL - Jacksonville Beach, FL
Realtor, Exit Real Estate Gallery

Inventory in my area is way low, too. There is also the shadow inventory to add to our problems, also.

Sep 25, 2012 05:23 AM
Momentum Realty
North Orange County CA Real Estate Specialists - Yorba Linda, CA
Orange County CA Real Estate Agent

Hi Shaun,

Thanks for the well written and detailed post!

The inventory is extremely low here in Orange County CA as well and the market seems to be improving tremendously. I don't know about the rest of the country, but from the looks of things here in So Cal, negative equity will soon be a thing of the past.

Have a great week!


Sep 25, 2012 06:01 AM
Donna Harris
Donna Homes, powered by JPAR - - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

The Austin inventory is 17% low over last year, but sales have increased 23% year over year. I don't understand why you need 20% equity in order to move up. Texas doesn't see much appreciation year over year and if 20% was the rule, some people would never be able to move. That's ridiculous!

Sep 25, 2012 06:02 AM
Ginger Harper
Coldwell Banker Sea Coast Advantage~ Ginger Harper Real Estate Team - Southport, NC
Your Southport~Oak Island Agent~Brunswick County!

I think this is true.  I think it will not pick up in our area until after the election.

Sep 25, 2012 06:28 AM
Kevin Mackessy
Blue Olive Properties, LLC - Highlands Ranch, CO
Dedicated. Qualified. Local.

The inventory is low in my local areas as well.  Here's to hoping it starts to spring back up soon.

Sep 25, 2012 08:05 AM
Jacob Thomas, Weston, Davie, Coopercity, Southwest Ranches, Miramar Realtor
South Florida Estate Homes Inc - Weston, FL
South Florida Estate Homes Inc.

Shawn great article buddy, same here in South florida too....very low inventory, have quite a few buyers trading up, but financing is a big issue as most of the banks want them to put atleast 20 % down..

Sep 25, 2012 08:43 PM
Tamara Inzunza
Realty One Group Capital - Alexandria, VA
Close-In Alexandria and Arlington Living

With the interest rates being so low, the thought of really low mortgage payments is a real tease for many to move up, including myself.  Would love to have more equity than I do right now so that I can buy my mansion :-)

Sep 25, 2012 09:42 PM
Goran Utvic
Goran Utvic Real Estate Broker/Construction Consultant - Chicago, IL
We Buy & Sell Chicago Houses Fast

Shaun great stats...thanks for the update

Sep 25, 2012 11:07 PM
Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease


Great facts.  We work a pretty healthy price point for our area.  We have helped a number of folks RENT out their existing property and buy a new one.  Now, this is not for everyone, but it's an option if you are financially viable.  The rental market is exceptionally strong and we have 11 years of leasing experience at the high end with 0, yes, ZERO evictions.  Like I said, not for everyone, but an option for some.

All the best, Michelle

Sep 26, 2012 04:40 AM