Homeowners who want to trade up are stuck waiting

Los Angeles: Back in the frothy days of 2007, Luciano Mor needed only a weekend and a Craigslist ad to find a buyer for his two-bedroom starter home.

The split-level house, on a quiet Silver Lake street, sold for $749,000 (Dh2.7 million), commanding nearly twice what he paid in 2002 and about $50,000 more than a real estate agent had suggested as a listing price.

Mor, who works for Vans' apparel division, had planned on taking the gains and snapping up a place closer to his job in Cypress with enough room to accommodate an expanding family.

Then prices started to drop. Nearly four years later, Mor is still looking for the right deal. "I just feel like the longer I hold off, the better I will be," Mor said.

Potential move-up buyers like the Mors are largely sitting on the sidelines these days, leaving a key part of the housing market stuck in neutral.

‘Gummed up'

"The move-up market is a conveyor belt, and everyone moves up a rung, but that has kind of gotten gummed up during the housing recession," said Stan Humphries, chief economist of the real estate website Zillow.

Although there is no way to precisely to track move-up buyers, such shoppers often are looking in the $300,000-to-$800,000 price range, according to San Diego real estate research firm DataQuick.

Home sales fell the most in that category in June, dropping 25.5 per cent from June 2010, mainly because buyer tax credits last year sparked so many first-time purchases, DataQuick said.

All those first-time purchases fuelled move-up transactions.

Before the bust, moving up was so common that chains of buyers and sellers would develop, with each deal dependent on the previous one in the chain.

Move-up buyers are a key part of a more robust market, as all that trading up fuels price gains and helps homeowners to build equity.

"It is critical," said Ed Leamer, director of the UCLA Anderson Forecast.

"The way to think about is a chain of trades that normally occurs, and if that chain is broken at any point, or it doesn't begin because you don't have enough entry-level buyers, then the whole dynamic of the marketplace is affected and the level of resales is going to be very small."

Dean Baker, co-director of the Centre for Economic and Policy Research, said the move-up market got out of hand during the boom, with too many people taking on more debt than they could afford.