A Sweet Spot for Move-Up Buyers?

The peak home-selling season may have ended, but there some buyers are just getting started: those looking to sell a home and trade up. Is now a good time for these buyers to start their search? And what does this uptick in move-up buyers mean for the market?

In this installment of Buying Advice, we'll also check in with the latest housing numbers and give move-up buyers a refresher course in listing terminology.

Movin' on up
Homeowners in many areas who bought just before the housing bust had little opportunity to move up to a larger home. Underwater on their mortgages, they were stuck for years waiting for their homes to appreciate.

The good news is that a significant number — 18.5 million homeowners, or 40% of all folks with a mortgage — now have at least 20% equity, according to real estate data firm RealtyTrac.

That's because prices in the first seven months of this year increased faster than in any year since 2004, when the real estate bubble was inflating, according to the latest Case-Shiller Home Price Indices.

Now many once-stuck owners can jump back into the housing market and move up to a larger or better-located house.

While exact data on move-up buyers is hard to come by, the share of first-time buyers has been declining, dropping to 28% of purchases in August from 31% in August 2012, while at the same time sales have surged by double digits, according to the National Association of Realtors. Extrapolate from that, and it appears second-time-around buyers are becoming a bigger part of housing sales as home prices and interest rates have started to rise.

"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, Trulia.com's chief economist.

Moreover, because these buyers have more money to put down and are less sensitive to interest-rate upticks, they can afford to wait until the right house comes along, Kolko said.

That's what Kim Drusch of Century 21 Award in San Diego witnessed with one of her recent listings.

While many homes at a lower price point were getting multiple offers, a home priced around $600,000 had plenty of interest at its open house, but no one eager to make an immediate bid.

Some home shoppers may be waiting for more inventory. With the number of homes available for sale limited, there's far less for move-up buyers to choose from. So, while selling their starter home may be easy, finding a place to move into is much less so.

To be sure, a lot of high-end inventory was taken off the market in the first half of the year.
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.

The return of move-up buyers is good for the market as a whole, Kolko said. It brings more homes to the market, particularly much-needed starter homes, as these buyers trade up.

It's also a good sign for the broader economy, wrote Yanling Mayer, research director for mortgage-technology company FNC, in the company's blog.

"An important sign of a healthy and sustainable recovery is increased housing turnover driven by trade-up buying, which is more or less discretionary spending," Mayer said. "These buyers are typically more responsive to market conditions and financial incentives."

There's one new twist on this trend in pricey California, however: Drusch said she is seeing the emergence of the "move-out" buyer, once-underwater owners who have finally regained enough equity and are selling and moving to a lower-cost state.

"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.'"

Housing-market snapshot: Sales swell; move-up buyers are back

Existing-home sales swelled 1.7% to 5.48 million in August from 5.39 million in July, a 13.2% jump from August 2012, as buyers rushed to close deals ahead of interest rate increases, according to the NAR.

At this pace, sales were at the highest level since February 2007, but buyers shouldn't expect this temporary "peak" to continue, said Lawrence Yun, NAR chief economist.

"Rising mortgage rates pushed more buyers to close deals, but monthly sales are likely to be uneven in the months ahead from several market frictions," he said. Those include tight inventory, higher mortgage rates and restrictive lending guidelines.

The national median price for an existing home was $212,000 in August, up 14.7% from August 2012 — the strongest year-over-year price gain since October 2005, when prices surged 16.6%.
 
Inventory increases should eventually help moderate some of these huge gains. Inventory nudged up a paltry 0.4% in August to 2.25 million homes for sale, which represents a 4.9 month supply at the current sales pace. This restricted inventory has led to multiple offers in many areas. And in some areas it is dampening sales In the West, it pushed sales down 2.3% from the previous month to a pace of 1.26 million.

New-home sales also picked up in August after dropping in July as mortgage rates climbed. Sales increased 7.9% from July to 421,000, the Census Bureau said.

Still, many market-watchers are already seeing the beginning of a fall cooldown, with buyers holding off and sellers reducing asking prices in many areas.

The average new-home sales price in August was $318,900, virtually unchanged from July, the Census Bureau said, but 4.4% higher than the average price of $305,500 in August 2012.

Despite the uptick, the months of July and August— typically two of the strongest months of the year for homebuilders — were this year's weakest.

Ed Stansfield of Capital Economics said not to expect this cooling trend to derail the housing recovery,. however. If anything, analysts say that the cooling trend is needed after this year's rapid run-up in home prices.

Move-up buyers: Know the difference in listing agreements
Before you buy your next home, you need to sell the one you have. Here's a little refresher course in the types of listing agreements that your agent might ask you to sign, and what they require of you, courtesy of the Federal Trade Commission's real estate glossary.

Do you know the difference?

• Exclusive right-to-sell listing: Under this listing agreement, the property owner appoints a broker as the exclusive agent to sell the property on his stated terms, agreeing to pay the listing broker a commission when the property is sold, regardless of whether the buyer is found by the owner, the broker or another broker. If a second broker finds the buyer, then the commission is divided between the two brokers.
• Exclusive agency listing: This more limited listing agreement specifies that the listing broker acts as exclusive agent to sell the property for the owner but may be paid a reduced commission — or none — when the property is sold if, for instance, the property owner finds the buyer. The commission is divided if a second broker finds the buyer.