How to move up in this market

Many people that bought smaller starter homes a few years ago when rates were in the 3-5% range would love to make a move up, but the higher interest rates are scaring them off. For some staying put makes sense, but many could be in a position to move up to a larger home despite the higher rates.

Starter homes are selling well right now, and move up homes are not doing as well. The price difference between a 20 year old 1400 foot 3 bed two bath and a 2200 foot 4 bed 2.5 bath home is less than $100,000 in the current market.

The thing holding many potential move up sellers back is the higher interest rate they will need to pay on the new house. When the market was hot and fueled by low interest rates, larger mid level homes were a lot more expensive relative to the starter homes. But now the higher rates have pinched the mid-market and the gap between them is pretty small. 

For buyers who have improved their finances over the last 5-8 years and have the benefit of a large pool of equity in their current home could make the move now rather than waiting. These buyers may be enjoying a nice low payment say $1800 and the new payment even with a large down payment on the move up house would likely be closer to $3000. But if they wait until rates drop again, that will drive pressure to the move up market and we will see a disproportionate price growth int he mid-level market. The entry level market has bloated prices due to the higher rates making them more desirable. Fewer people can afford the larger homes at these modern rates so those homes are effectively "on sale." 

The benefit to moving now is that your basis in the new house will be lower and if rates come down, a refinance could lower the payment later. Waiting until later IF rates come down could end up being more expensive as the savings in interest could be gobbled up my the increase in prices. People in an FHA loan paying 0.55 monthly mortgage insurance will be able to buy the new house with a conventional loan and no MI using the sizable equity in their current home.

It is worth doing analysis and for some it may be surprising to find out that a move up now might be better than waiting. As I mentioned above however, for some waiting could actually be better. every situation is a little different and the numbers play out differently as well.

Contact Rod or your trusted agent for information for your situation.