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Stuck With a Starter Home? 10 Places Where Trading Up Is Toughest

Your sweet two-bedroom condo sure felt like the perfect size when you bought it. But 10 years, two children, and one capybara named Humbert later, it’s begun to feel awfully cramped. You now need a playroom for the kiddies, a home office for your side hustle that could be turning into a full-time gig, and a guest bedroom for the in-laws. And heck, a nice backyard deck, a few avocado trees, and a lap pool wouldn’t be too shabby either.

You know what? It might be time to move to a bigger home. After all, that’s the home-buying circle of life! Right?

Not so fast. You may have thought that getting one foot on the ladder of homeownership was the hardest part, and that you’d easily be able to ascend to bigger, better, and more spacious digs as you moved up through life. But in fact, trading up has become an increasingly difficult prospect across the nation, leaving many homeowners stuck in their starter homes. Sometimes for good.

Here’s the problem in a nutshell: high prices and low inventory. So while homeowners may be able to fetch record-high prices for their abodes in many parts of the country—driven largely by a shortage of homes for sale—those very same high prices and low inventory make it tough to pick up something better in a particularly tight market.

“In today’s competitive landscape, moving up from [starter homes] to the white picket fence has become increasingly tough,” agrees Javier Vivas, manager of the realtor.com® economic research team. “This isn’t particularly unhealthy for the market, since it stops some irrational buyers. But it can leave out a large crowd of buyers who are financially ready.”

The number of repeat home buyers fell from 1.8 million in 2001 to 1 million in 2016, according to the Urban Institute, an economic think tank.

Repeat buyers include those trading up, downsizing into smaller, but fancier abodes and those buying similar-sized homes elsewhere. But it’s those classic trade-ups—moving to a nicer, bigger, and generally more expensive home—that are faring the worst right now. In 2015, only 42% of move-up buyers got back into the market, down from 55% in 2003, according to the National Association of Realtors®.

In search of a trade-up

The reasons for the drop in repeat buyers are different for every market, but familiar themes crop up across the nation. New home construction hasn’t caught up with demand, exacerbating the lack of homes for sale; there’s strong competition from investors and foreign buyers who can pay in cash in the most desirable markets; and many buyers simply haven’t recovered enough equity in their homes since the housing crash to finance a more expensive mortgage.

Current home prices have recovered about 80% of their pre-recession peak value, adjusting for inflation, according to realtor.com® data.

“After years of recovery, homeowners are slowly building up equity in their homes again. But it’s not necessarily as much as they need to afford a better home and a bigger mortgage,” says Bing Bai, a research associate at the Urban Institute.

To find out where trading up might be the hardest, we ranked the 100 largest U.S. metros by seven criteria:

• Affordability of trade-up* homes, measured by percentage of income needed to buy a home
• Price gap between starter and trade-up homes
• Price increase of trade-up homes since 2014 (the faster the increase, the less affordable they are)
• Dwindling supply of trade-up homes since 2014 (the faster the decline in numbers, the harder they are to buy)
• Percentage of homes with negative equity
• Days on market (the shorter they are for sale, the harder they are to secure)
• Percentage of households that have lived in the same home for more than eight years, indicating that they might be ready to move up to a new home

Upward mobility in today’s housing market isn’t always a walk in the park, my friends. It requires a plan. We’re here to help!

1. Palm Bay, FL

Median price of starter home: $148,000

Median price of trade-up home: $329,900

Price difference: 223%

Skyrocketing prices of trade-up homes—19% a year since 2014—are making it harder for homeowners in metro Palm Bay to find the real homes of their dreams.

Prices in this resort town are rising because the metro has added thousands of jobs in service, education, and health care, drawing a growing number of out-of-towners. Who can say no to terrific surfing, chill waterfront bars, and Zen-like fishing piers?

Those who trade up “need to have a game plan for what they are going to buy, because they are not easily finding what they want out there,” says Vicky Santana, a Realtor® with NextHome Santana Real Estate in Vero Beach. “With the inventory being so low, they have to carefully evaluate.”

Buyers who feel stuck will need to adjust their expectations—forget about that dreamy beachfront villa. Instead, look to inland neighborhoods in southwest Palm Bay, where a decent trade-up home is obtainable for around $250,000.

Plus, rapid price appreciation doesn’t mean every homeowner is financially sound enough to trade up. Badly burnt by the recession, about 11% of homeowners are still underwater, almost double the national average of 6.2%. These homeowners have to restore their equity before they can use it as leverage to buy a bigger home.

2. Omaha, NE

Median price of starter home: $97,000

Median price of trade-up home: $314,200

Price difference: 320%

The Midwest has a low-profile boom town: Omaha. A white-hot housing market has led to a severe supply crunch that has slashed the number of affordable trade-ups in half in just three years.

The stomping ground of Warren Buffett and his company, Berkshire Hathaway, is also home to five other Fortune 500 companies. The area boasts an impressively low 3.2% unemployment rate as of March.

But new home construction has been concentrated in the west and southwest outskirts of Omaha, and redevelopment of houses in the urban core has been limited due to the shortage of land. Those seeking bigger homes need to give up the central location and a car-free lifestyle and move farther out.

“If you really want to buy a bigger and better house, you have to win it,” says local Realtor Mark Leaders of CBSHome Realty. “That means getting your ducks in a row, and coming up with a clean offer—one that demands less from the sellers.”

3. Detroit, MI

Median price of starter home: $60,000

Median price of trade-up home: $269,300

Price difference: 449%

Four years after it went bankrupt, Detroit is doing the phoenix thing, up from the ashes. But plenty of neighborhoods are still suffering from blight and distressed homes. A large swath of homeowners are locked into their starter abodes because they’re still underwater or haven’t built enough equity to move on. In metro Detroit, 15% of mortgaged homes still have negative equity, among the highest rates in the country.

Even many of those who have seen the value of their home recover are sitting on the fence, waiting for prices to go up higher before they consider selling and moving up.

“People are just starting to get some fresh air now. They are finally not drowning,” says James Tumey, senior Realtor at The Loft Warehouse, a real estate agency. “But the thinking is: ‘We’ve got to be smart, we’ve got to protect our investments.’”

Trading up is also held back by the so-called “appraisal gap.” In other words, a home in good condition is often appraised for less than it’s actually worth, because it’s compared with distressed properties nearby. As a result, mortgage-dependent buyers are unable to get a large enough loan to afford their next home at market value.

The Detroit Home Mortgage Initiative addresses the appraisal gap by providing buyers with a second mortgage that, combined with the first one, can exceed the appraised value of the home.

4. Honolulu, HI

Median price of starter home: $325,000

Median price of trade-up home: $875,000

Price difference: 269%

In this tropical island paradise, commercial jet planes filled with rich Asian buyers just keep on landing. Will they ever stop? These buyers are quickly gobbling up the upper reaches of the real estate market.

“Those foreign buyers are willing to pay $1 million for a property and pay it in cash,” says real estate analyst Keith Jurow, who publishes monthly reports on the housing market. And this has a trickle-down effect on less expensive homes. “They’ve pushed up the prices of the mid- to high-end market.”

Honolulu homes have always been expensive, since there’s only so much land to build on. The “price of paradise” is indeed steep. It’s tough enough to spring for a starter home costing $325,000. But trade-up buyers need the value of more than two starter homes ($875,000) to afford a mid-level home. And that home may be nothing like you’ve envisioned: A mid-range home ranges from only 1,400 to 2,000 square feet in size.

But don’t despair just yet. Nearby Kapolei and Ewa Beach, east of the airport, remain among the few cheaper neighborhoods, where master-planned communities offer trade-up homes for around $700,000.

5. Seattle, WA

Median price of starter home: $254,900

Median price of trade-up home: $549,900

Price difference: 216%

A brisk job market has made Seattle’s real estate business a contact sport: Buyers wage war with one another, submitting ever-higher bids. That’s because there are only half as many trade-up homes on the market today as three years ago.

Aggressive hiring at Amazon and Microsoft is drawing large numbers of high-paid tech workers who can afford more expensive homes, thus depleting the pool of mid-tier places. Deep-pocketed international buyers have also been entering the market, snatching up mid-range and luxury homes after Vancouver put a foreign-buyers’ tax into effect last year.

Trade-up buyers face the trickiest balancing act. They have to max out their sale price and then act fast to get a new home—and a listing in Seattle is usually sold within a month.

6. Tucson, AZ

Median price of starter home: $148,000

Median price of trade-up home: $300,000

Price difference: 203%

Somewhat like in Detroit, a huge chunk of underwater homes (11%) is creating serious gridlock in Tucson’s housing market. Those who wish to move up are forced to hang on to their current homes and hope the balance they owe on their mortgages will fall, boosting their equity.

Complicating matters, the number of available trade-up homes has been declining at 15% a year since 2014. And builders still aren’t putting up enough homes to meet demand, citing shortages of skilled labor and high building costs.

But there’s hope! The state just rolled out a program, “Pathway to Purchase,” that provides up to $20,000 in down-payment assistance for anyone making less than $93,000 a year. And that includes repeat buyers.

7. San Jose, CA

Median price of starter home: $599,000

Median price of trade-up home: $1,186,500

Price difference: 198%

Silicon Valley, America’s most expensive housing market, isn’t easy on those who already own a home. A regular trade-up home in a middle-class neighborhood costs just short of $1 million, a price usually reserved for luxury estates in the rest of the United States.

Given Silicon Valley’s booming tech-based economy and the very low supply of available homes, bidding wars are more common here than used Teslas.

Even with a sizable income—the median for San Jose households is $92,800—it still takes 44% of a family’s earnings to upgrade, way higher than the commonly recommended 28%. Unless they bring extra cash to the table, their starter home doesn’t have enough equity to support a much larger loan.

Savvy trade-up buyers have learned not to dismiss less attractive, long-snubbed locations. Our earlier study showed that nearby Milpitas, known for its pungent landfill, is one of the fastest-growing suburbs in the country. After all, top-ranked schools and relatively affordable homes are much more important than stinky real estate. We think.

8. Dallas, TX

Median price of starter home: $187,000

Median price of trade-up home: $399,900

Price difference: 214%

More new housing is on the way in Dallas. Just look at all the cranes dotting the city’s skyline. But these extra places to live aren’t bringing down the rising home prices faced by trade-up buyers in metro Dallas. The median price of mid-level homes has grown by 17% a year in the past three years alone.

With a mid-level home more than twice as expensive as an entry-level one, finding the next place for a growing Dallas family can be a challenge. Buyers generally need some extra cash, in addition to their home equity.

And while just about everyone hates long commutes, it’s on the outskirts of the city that there are more affordable options. Trade-up homes in the low $300,000s are still available in towns like Keller. Less than an hour outside of downtown Dallas, the town strikes a nice balance between big-city comforts and small-town charm.

9. Sacramento, CA

Median price of starter home: $274,900

Median price of trade-up home: $522,200

Price difference: 190%

Upgrading to a bigger home is a challenge in Sacramento, thanks to all those San Francisco refugees. The pool of mid-level homes has been falling by 19% a year since 2014, as transplants from the city by the bay, one and a half to two hours away, arrived in droves. That’s because the cost of a larger, move-up abode in Sacramento would barely cover a starter home in San Francisco.

In addition, intensive urban renewal efforts have made Sacramento an attractive place to live. Hip and walkable neighborhoods have sprung up downtown, along with stylish boutique shops, artsy galleries, and bohemian cafes.

In this extremely tight market, buyers are striving to gain an edge—and everything is considered worth a shot. More of them are talking to their agents about finding off-market properties, also known as “pocket” listings, or to look for homes that were recently listed but taken off the market without being sold. Chances are the owner might still be willing to sell.

10. Atlanta, GA

Median price of starter home: $139,900

Median price of trade-up home: $339,000

Price difference: 242%

The Atlanta housing market has become a tale of the haves and have-nots. The Southern mecca is among the most economically unequal in the country, according to a study by Brookings Institute.

“There’s a big hole in the housing market, the inventory is very tight for homes that are really desirable, and that’s what people moving out of their first homes are looking for,” says Jen Engel, real estate agent at Nest Atlanta EXP Realty.

A widening price gap between entry-level and mid-level homes is making trading up financially out of reach for many folks jonesing for even a tad more space.

Location is key for Atlanta buyers. Midtown and Buckhead are almost exclusively luxury homes—way out of a typical trade-up buyer’s range. Meanwhile, the northeastern outskirts of the city are dominated by foreclosed or run-down properties.

Discerning buyers on a budget should try Sandtown, a historical neighborhood going through massive redevelopment. The walkable neighborhood boasts an abundance of decent-sized trade-up homes at reasonable prices.

* For each market, we roughly divide all homes into three buckets: starter home, trade-up home, and premium home. In this article, starter homes are the bottom 40% of all homes in terms of both size and price, and trade-up homes are among the middle 40%.

Data source: realtor.com, CoreLogic, U.S. Census Bureau.

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