Move-up home buyers still absent

Could it be that the housing market is still recovering from the great recession? Maybe, considering that the housing market has not fully returned to a stable cycle. Consider the inconsistency of annual home sales that seem to surge every three years, the steep home price increases over the last four years, and the lack of move-up home buyers in the market.

Summer is typically the strongest time of year for the market. However, the National Association of Realtors reported that existing home sales decreased during June and July of this year (a decrease of 1.8 percent and 1.3 percent respectively). And July’s Pending Home Sale Index (projecting future sales) decreased 0.8 percent (nar.realtor).

Of course, the NAR’s take on this bump in the road is provided by their Chief Economist Lawrence Yun. Yun described the discrepancy of wage growth to home price gains as a reason for this summer’s home sale slide. He explained that the median home sale price increased 38 percent in the last five years, while hourly earnings only increase 12 percent. He points out the obvious, that sharply increasing home prices are creating an affordability gap, which is pricing many home buyers out of the market.

Yet, according to the NAR, “Home buyer” traffic continues to grow, while the housing inventory continues to shrink (the national home sale inventory during July decreased 9.0 percent from the same time last year).

Yun stated:

The reality, therefore, is that sales in coming months will not break out unless supply miraculously improves. This seems unlikely given the inadequate pace of housing starts in recent months and the lack of interest from real estate investors looking to sell.

Home sale inventory has been an issue for the housing market since its slow recovery began four years ago. Although many will explain away the dearth of homes for sale as a result of strong demand and quick home sales. However, they do not take into consideration that currently for every three homes that sell, there is one that does not. The 1 in 3 fallout is the expectation in a typical market, while there is only a 1 in 10 fallout in a market with strong demand (such as in 2005), so home buyer demand is not exceedingly strong.

Of course, the main reason for the low housing inventory is that home owners are staying in their homes much longer than in the past.

According to the NAR, between 1987 to 2008 home owners stayed in their home an average of six years before buying their next home. However, since 2010, the average time grew to fifteen years! The result is a lower number of move-up home buyers in the market, and a reduced number of homes to sell.

One of missing pieces to a stable housing market has been the move-up home buyer. The move-up home buyer is the buyer who will sell their current house to move into another home. The necessity of move-up home buyers was acknowledged as part of a healthy housing market way back in 1985, when the economy was recovering from the deepest modern recession at that time (Move-up Buyer Provides The Base For A Recovering Housing Market. chicagotribune.com. August 17, 1985). Part of the housing recovery of 1985 was the increased participation of the move-up home buyer. As move-up home buyers “upgraded” to larger home, more affordable modest homes become available to first time home buyers.

Low housing inventory combined with elevated first time home buyer activity has fueled home prices over the last four years. Until move-up home buyers are fully participating in the market, we will continue to see continued lack of inventory, steeper home sale price increases, and unpredictable market cycles.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

April 3, 2013November 23, 2021

When will move-up homebuyers return to the housing market

by Dan Krell
Google+
DanKrell.com
© 2013

Move-up home buyers missing from housing recovery; when will move-up home buyers return to the housing market?

I recently came across an interesting article about “move-up” home buyers online titled, “Move-up Buyer Provides The Base For A Recovering Housing Market.” The piece, published by the Chicago Tribune, is not unlike the many articles you might find today about the missing move-up buyer in the housing recovery. However, this article is different – it was published August 17, 1985 (article can be found here: articles.chicagotribune.com/1985-08-17/news/8502240441_1_interest-rates-trade-up-market-home-resale-market).

The striking similarities between the current housing recovery and a real estate market that was recovering from one of the deepest modern recessions up to that time (during the early 1980’s), includes home buyer behavior and economic concerns. And of course, the affected move-up buyer sector and the dearth of inventory appear to be familiar.

Home buyer behavior doesn’t have seemed to have changed much as many would-be home buyers are trying to time their purchase with the market bottom. At that time, like today, interest rate pressures are helped home buyers decide to jump into the market; additionally, then like today a significant number of buyers were first time home buyers. Downward pressure on mortgage interest rates, combined with the fear of rising rates affected home buyers to get off of the fence. However, peek mortgage interest rates averaged about 15% in the early 1980’s.

Another similarity between both periods is the missing move-up market. The typical move-up home buyer is sometimes described as a home owner who decides they need more space, which results in the sale of their smaller home and the purchase of a larger home. Then like today, the move- up home buyer was the missing piece to the housing recovery; the move-up home buyer provides much of the housing inventory that first time home buyers seek. However, it seems as if a “psychological barrier” (as described by the Chicago Tribune piece) holds back many move-up buyers today as it did in 1985. During the current housing recovery, many potential move-up buyers have remained in their homes.

Like other housing recoveries, one of the main issues holding back the move-up buyer is housing appreciation. During an early recovery, home owners may have a difficult time rationalizing buying a larger more expensive home when the new home could depreciate the first year of ownership, let alone the thought of a perceived loss of equity in their current home.

As home prices stabilize it would be reasonable to think that there will be an increased presence of the move-up home buyer. A good example of this was in the housing recovery that took place during 2003-2004. At that time, low mortgage interest rates helped first time home buyers back to the marketplace, and the move-up buyer sector took off relatively quickly when rapid home appreciation was realized. Of course rapid home appreciation was a function of “easy money” that generated real estate speculation that produced the “go-go market” of 2005-2006, the housing bubble, and the subsequent financial/housing crises.

The similarities of a post recession housing recovery might indicate there is currently progress. However, the move-up home buyer sector may be one of the final pieces to the recovery puzzle; and until the move-up home buyer presence is felt in the marketplace, we may yet to endure a few more years of “recovery.”

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published the week of April 1, 2013. Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

October 14, 2006April 26, 2019

Remodel instead of Move?

Moving up has been a right of passage for families for years. Families have been moving up for one reason or another, usually because of the need for space or just to move to a new neighborhood. However, spiraling home prices made many to rethink the usual move up, and instead make improvements on their homes. Rather than buying the four bedroom colonial they need due to a growing family, homeowners are adding rooms and enlarging the spaces they already inhabit. They’re thinking remodel instead of moving.

If you are unsure of making improvements or selling your home, there are some factors to consider. RemodelorMove.com (www.remodelormove.com) lists the top reasons for remodeling instead of moving includes: you like remodeling; you like your home floor plan; you like your neighbors; you like your yard; you have a great location; you will get exactly what you want; and you feel that it can enhance the value of your home. If you’re trying to decide whether remodel or move, you may find some of the reasons to remodel resonate.

If you decide to remodel rather than move, there are some considerations. According to RemodelorMove.com you should consider how long you are going to be in your home, the costs involved, and the timing of the remodeling before you move.

If you are planning to stay in your home less than a year, you should consider the actual cost of the improvements against the return you may get on your upcoming sale. However, if you plan to be in your home for a few more years or longer consider the factors of personal pleasure and comfort.

If you are concerned with cost vs. value, a great resource that every turns to for their annual report is Remodeling Magazine (remodeling.hw.net). According to Remodeling Magazine, return on investment depends on the value of the house itself, the value of similar homes in the immediate area, and the rate property values are changing in the surrounding neighborhoods. Some projects will recoup more than 100% of the original investment, however overall in 2004 the return of investment was 80.3%.

The following are the top improvements listed listed in this year’s Remodeling Magazine annual report in order of return on investment: minor kitchen remodeling -92.9%; siding replacement-92.8%; midrange bathroom remodeling- 90.1%; deck addition- 86.7%; upscale bathroom remodeling- 85.6%; and window replacement- 84.5%. You can view the rest of the 2004 report on the website.

Both selling and remodeling can be large propositions that can bring a lot of joy. There are many resources available to help make your decision. But you should verify the information you get, especially from the internet. Additionally, you should consult a local contractor and a Realtor to assist with costs of improvements and neighborhood home values.

by Dan Krell Google+ DanKrell.com © 2013

Move-up home buyers missing from housing recovery; when will move-up home buyers return to the housing market?

by Dan Krell
Google+
DanKrell.com
© 2013