Repeat Home Buyers a Rare Breed

For information about luxury and coastal properties in Southern California, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties services buyers and sellers of exclusive California homes in Newport Beach, Dana Point, Laguna Beach, Laguna Niguel, Coto de Caza or Malibu beach homes and beautiful La Jolla CA real estate.

Repeat Home Buyers a Rare Breed

By Carolyn Said in the San Francisco Chronicle

After selling their San Ramon home, Erick and Nichole Ormsby recently moved into a bigger house in a better school district in Danville.

Such “move-up buyers” have long been the lifeblood of a vibrant real estate market, accounting for significant chunks of supply as they sell their homes, and demand as they buy larger ones.

But post-housing crash, they remain a rarity.

Even as the market begins to recover, the dearth of move-up buyers is one reason inventory continues to be scarce in the Bay Area and nationwide.

“In the grand scheme of things in housing market history, the repeat buyer – whether move-up, move-across or in the case of empty nesters, move-down – has provided a steady stream” of new listings, said mortgage analyst Mark Hanson. “Now the repeat buyer is down for the count.

“The majority of demand is coming from first-time buyers and investors, who don’t leave a unit of supply for someone else to buy.”

Millions of people who might otherwise be move-up buyers are stuck in place because their homes are underwater. Even people who are not fully underwater can’t move, Hanson said, since they need equity of 5 percent to pay real estate costs in a sale and then another 20 percent for a down payment.

“Households that owe more than 80 percent (of the home’s value) are ‘effectively underwater,’ ” he said. “In California, 53 percent of households with a mortgage are in that category. Nationwide, it is 49 percent of the mortgaged homes.”

He pegs the number of such “effectively underwater” homes nationwide at 25 million.

Fortunate – and rare

The Ormsby family was in the fortunate – and rare – situation of having equity in their home, which they’d owned for 13 years, as well as stable employment.
“We wanted a bigger yard for the kids (ages 5, 7 and 9) in a nice neighborhood that would work for us,” said Erick Ormsby, who is president of Alcosta Capital Management, an investment advisory in San Ramon.

“Interest rates are low, so that was a motivating factor to lock in a low rate now; we got 3.75 percent on a 30-year fixed mortgage. My concern is that the market is going to be getting a lot better and prices will be going up, so it would be harder and harder to get the kind of house we wanted.”

Underwater homes tend to be owned by younger people – the same ones who ordinarily would be seeking larger homes as their families grow, said Stan Humphries, chief economist of real estate site Zillow.com.

Less inventory

“With so many cohorts under 40 being underwater, it has gummed up the treadmill of the housing market. You expect new home buyers to get on the treadmill, accumulate equity, then take a step forward” to a larger house.

Negative equity also is disproportionately concentrated in lower-cost homes – the more affordable residences that first-time home buyers would like to bid on, if they were on the market.

At the same time, foreclosures have fallen, in part because of government programs designed to help people stay in their homes. That also means that fewer of the more-affordable homes are being listed for sale.

“In any given month, only a certain number of homes are trickling onto the market,” said Errol Samuelson, president of real estate listing site Realtor.com. “All these buyers are converging on those homes.”

Out of 146 markets Realtor.com tracks, all but two saw inventory shrink this year compared with the same time last year, he said.

Road to recovery

However, there are some upsides to the slow pace of new for-sale homes, he said.

“As homes become less underwater (and go on the market), it makes for an orderly recovery,” he said.

In fact, the real estate market continues to exhibit signs of stabilizing. On Tuesday, the authoritative Case-Shiller index showed home prices rising in all 20 markets it follows.

The tight inventory also contributes to rising prices, which helps wipe out negative equity and may lure some people to sell.

Dana Point Luxury homes for sale