Tough Sledding for Move-Up Buyers in San Carlos.

April 25, 2012 San Carlos Real Estate No Comments

Stuck in the Middle.

You would think that any home seller in San Carlos would be absolutely thrilled with the current condition of the real estate market, with its tight inventory, endless stream of well-heeled buyers, double-digit multiple-offers, and prices soaring at a seemingly unabated rate. Who wouldn’t want to list their home in a market that so overwhelmingly favors the seller?

But there is a small legion of home sellers in San Carlos right now who would absolutely love to partake in the spoils of this market, but simply cannot. Unlike homeowners who are moving out of the area, or are perhaps downsizing, this group of sellers wants to stay in San Carlos– perhaps in a larger home or in a different neighborhood. They’re the move-up sellers, and right now they’re absolutely paralyzed in this market.

Infinite Selling Power, Zero Buying Power.

The primary problem that the vast majority of move-up sellers face is that they usually need to sell and close escrow on their current home first before they can complete the sale on their next home, since they’re “buying up” into a larger mortgage. Unless they just hit the IPO jackpot, or somehow have an unusually high amount equity in their existing home, this is a rigid requirement for most move-up buyers. So this means that once they’ve identified their target move-up home, they have to write an offer that’s conditional on them selling their current home first.

In a normally market that’s balanced and has a healthy level of inventory, many sellers would be open to taking a conditional offer from a buyer. But in the tightly constrained market that is seeing more non-contingent and all-cash offers, a conditional offer falls to the bottom of the stack just about every time. The ultimate irony here is that these very same market conditions serve to remove almost all of the risk from the conditional offer — the move up buyer can sell their house in a nanosecond in this white-hot market, but their buying power is negligible compared to non-conditional and non-contingent offers.

In other words, they have infinite selling power but zero buying power.

Conspicuous by their Absence.

Move-up buyers are a critical cog in the real estate food chain. In a typical market, not every home seller is retiring or relocating out of the area for job reasons. A significant chunk of the inventory that comes on the market is from those home owners who move within San Carlos, and they’re a vital piece of the machine — on one hand, they create supply, while on the other they help consume inventory.

But right now, many move-up buyers have reluctantly decided to ride out the storm. They’re using this time to stash away more money for a larger down payment, and are waiting for a balanced market that is more favorable to buyers. Many will pin the lack of inventory on the “Facebook Effect” (people waiting to list their home until that busload of FB millionaires cruises through town), but I’m convinced that the lack of move-up buyers is playing a far large role right now.

Their absence is definitely being felt…
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