What keeps starter homeowners from upgrading?

If the number-one most often asked question in housing is “how can we encourage more non-homeowners to buy home,” the close second ought to be “how do we encourage more homeowners to sell their existing home and buy to another new home.” Realtors, mortgage brokers, developers, the banking industry, and our economy rely on homeowners to sell and buy more homes to prosper. If everyone stays put, or worse, gets stuck and becomes stagnant, then so does our economy.

Our recent over-heated housing market has been in large part caused by a housing drought at the starter-home level, which was in turn prompted by low mortgage rates and homeowners’ reluctance to give up their low mortgage payments. Putting aside the effect of mortgage rates – the elephant in the room that realtors and the mortgage industry can’t change, that have been rising since post-Brexit low in 2016 – there are other deterrents that keep upgrade buyers on the sidelines, which realtors and prop-tech firms can potentially help address.

In ValueInsured’s Q4 2018 Modern Homebuyer Survey, starter-homeowners who expressed strong interest in selling and buying another home were asked to list factors that keep them from “pulling the trigger now.” The results are interesting, especially when considering the overall positive economy we have. 

Starter-homeowners who are not highly interested in buying another home are not included in this portion of the survey. Among those who are eager to sell and then buy another home (some respondents listed more than one factor that deters them):

  • Over 1 in 3 (36%) say they are waiting to sell then buy because current home prices are too high, and they plan to pull the trigger after an expected correction. Presumably, they will be selling high too if they don’t wait, however, as most of these starter-homeowners plan to upgrade to a more expensive home, it is to their advantage – as their logic goes – to wait, even if it means selling a bit lower later in exchange for a bigger saving to buy after a correction.  

  • 31% report they plan to relocate soon, and will wait to buy after moving even as they are outgrowing their current home. This is a reminder of the nomadic nature of many homeowners and homebuyers, particularly at the starter level.  

  • 30% say they are delayed by insufficient funding, and have not saved enough to buy the kind of home they would want to buy next.

  • 24% – nearly 1 in 4 – say they are uncertain about their job status, and are waiting for income assurance before selling and buying again. This is interesting given the recent state of the economy that has been undeniable upbeat, with consecutive quarters of positive jobs numbers. It appears a sizeable segment of starter-homeowners – who presumably are financially better off than most of their non home-owning peers – do not feel they have enough job security to upgrade to a more expensive home.

  • 13% report they would be getting married soon, and are waiting to buy another home after their nuptials.

  • 6% report they are expecting to divorce soon, and are waiting to sell and buy after that concludes.

There are important nuggets here worth noting for housing professionals. Nearly 1 in 5 starter-homeowners (19%) who plan to buy again soon could be going through marital changes, something that the housing industry could resonate with when addressing potential sellers and buyers. Relocation and job worries are also some key themes that emerged. The most sizeable psychographic cohorts appear to be those waiting for a correction, something that none of us could reliably count on. This group could respond well to assurance that they won’t suffer a loss later even if they buy high now, but could instead miss a great buying window if they wait too long.