Immobile ‘move-up’ buyers weigh on market

Inventory of for-sale homes on the market has fallen 24 percent from a year ago and many are pointing to the “immobile move-up buyer” as the reason behind the drastic drop.

Some analysts say the lack of move-up buyers in the market may also slow the overall housing recovery.

Housing affordability-due to fallen home values and ultra-low mortgage rates-is at record highs. But mortgage applications for home purchases are down by 6 percent over the last year, according to data from the Mortgage Bankers Association.

Some point to the still-high number of homeowners underwater on their mortgage as the reason. Many of these home owners are taking a “sit and wait” approach until prices pick up. Only then will they seriously consider moving on, analysts say.

The numbers have been improving. While three months ago 12.1 million borrowers had negative equity, only 11.4 million do now, according to CoreLogic. Still, nearly 24 percent of all residential homes with a mortgage are underwater. Plus, about 2.3 million additional borrowers have less than 5 percent of equity in their homes, which is considered near negative equity.

Mortgage analyst Mark Hanson told CNBC, however, that homeowners probably need about 20 percent of equity in their current home in order to move up and buy another home. According to his calculations, about 25 million borrowers don’t have that kind of equity.

“Half of the repeat buyers have died. They are down for the count due to negative equity, ‘effective’ negative equity, low quality credit, or legacy second liens they can’t extinguish,” Hanson says. “This is a huge problem for anybody betting on ‘escape velocity’ or a ‘durable recovery’ in housing.”