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Move-up buying activity rises with home equity gains

Previously underwater homeowners are ready to buy again

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Housing demand from move-up buyers — or existing homeowners selling their current properties to replace them with a more expenseive home — is on the rise as home equity levels improve.

As home prices continue to increase, so does demand from move-up buyers, who are now able to provide a substantial downpayment on a new home after gaining value on rising equity, the latest report from real estate data firm FNC revealed.

"An important sign of a healthy and sustainable recovery is increased housing turnover driven by trade-up buying, which is more or less discretionary spending," FNC Director of Research Yanling Mayer said. "These buyers are typically more responsive to market conditions and financial incentives," she added.

Much of the desire for move-up buyers lies behind rising mortgage rates. "They know if they don't move now, they might be kicking themselves all over again in three months,” said Redfin Los Angeles real estate agent Eric Tan back in July, when rates were throttling upward. Historically, rates remain very low, but experts predict they will continue to gain steam as we move into 2014.

According to Daren Blomquist, vice president of RealtyTrac, 18.5 million homeowners — 40% of all homeowners — have at least 20% equity or more, putting them in a prime position to sell.

"In addition, we show 8.3 million homeowners who are on the equity fence, and should have at least 20% equity in the next 15 months if home prices continue to appreciate at the same rate we’ve seen over the past 15 months," Blomquist said in an interview with HousingWire.

Blomquist noted that if 5% of these 8.3 million homeowners list their homes for sale, that’s an additional 415,000 homes that will be available for sale in the coming months.

"The increase in the share of equity sales reflects a market that is fully transitioning from investor purchases of distressed homes to primary home purchases by households," said California Association of Realtor Vice President and Chief Economist Leslie Appleton-Young in a recent equity report. "The market continues to improve as more previously underwater homes gain equity due to recent upward movements in price."

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