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Trading Up Can Be Hard to Do

EVEN with a hefty down payment, a perfect credit score and a top-notch broker, many New Yorkers who want to move to bigger and better apartments are having no luck. Stymied by a scarcity of listings and a tight credit market, even the most qualified buyers are being outbid, turned down for loans or simply can’t find what they’re looking for. As a result they are being forced to sit on the sidelines.

Moving up to a two-bedroom may be the biggest challenge. Sales have been relatively strong at the upper and lower reaches of the Manhattan market, but the middle, which is made up largely of two-bedrooms in the $1.4 million to $3 million range, shrank to 29.4 percent of the market in the third quarter, down from 37.9 percent in the same period last year, according to Jonathan J. Miller, the president of the appraisal firm Miller Samuel.

The same trend, he said, is playing out not just in New York City boroughs like Brooklyn and Queens, but also in coastal cities like Miami, San Francisco and Los Angeles, where trophy properties continue to be snapped up by investors, and where sales of studios and one-bedrooms continue to be strong, driven by first-time buyers taking advantage of record low mortgage rates and escaping high rents in the process.

In the middle is what Mr. Miller describes as the “doughnut hole” of the housing market. “They’re looking at mortgage rates and are licking their lips because rates are so low,” he said. But “they can’t trade up.”

Tara Jepson and Dan Eckstein are in the doughnut hole. They have great credit, steady incomes and a good-size down payment at hand, having recently sold their one-bedroom Chelsea apartment for cash. And though they are set on a two-bedroom or a one-bedroom with an office in Brooklyn, they are flexible when it comes to almost everything else.

“If it has outdoor space great, if it doesn’t — that’s not a huge deal,” said Ms. Jepson, 34, a director of strategy at an advertising agency. A doorman is not a requirement either. “We would do a walk-up,” she said. “It doesn’t need to have an elevator. We’ll renovate, tear down the whole structure — even if we can’t move in for a year.”

But after a year and a half of aggressively looking, the couple still haven’t been able to make a deal. And that’s after broadening their search from South Williamsburg to nine other neighborhoods in Brooklyn and loosening their purse strings to a maximum of $1.5 million, up from their starting point of $800,000.

“I’m so frustrated,” said Ms. Jepson, noting that most apartments in their price range were either “chintzy,” or in a residential-commercial space that made getting a loan tricky. “I feel like we have great credit, all the financial documents and are willing to pay more, and we still can’t find what we’re looking for.”

They are far from alone. In Manhattan the number of two-bedroom listings has dwindled — down 28.4 percent to 1,673 listings in the third quarter from the same period a year ago, according to Miller Samuel. But the underlying issue is low equity. The fall in prices since 2008 means that even if the apartment has appreciated in value, selling it may not result in enough extra money to get that homeowner into a bigger and better place at a price he or she can afford.

With down-payment requirements now firmly at 20 percent or more, rather than the 5 or 10 percent of a few years ago, Mr. Miller said, “people need more cash to make the next move, and that’s the challenge.” Put another way, Mr. Miller said, “they’re stuck.”

Mitch and Shira Goldstein recently began looking in earnest for a two-bedroom after their large Upper East Side one-bedroom received three bids the week of the open house and went into contract more quickly than they expected for just shy of the $525,000 asking price.

“On the flip side,” said Mr. Goldstein, an integrated sales director for a publishing company, available listings within their $725,000 budget have been disappointing. “They were a little run down and it didn’t seem like we would ever have as big or as nicely finished a place for the same price point that we had by staying.”

“We will probably rent for a year and continue to watch the market,” Mr. Goldstein said.

Brokers say the scarcity of middle-market listings ensures fierce competition among buyers. “In my almost decade-long career, I haven’t seen inventory this low,” said Stefanie Barlow, a vice president of the Corcoran Group who has been working with Ms. Jepson and Mr. Eckstein over the last year or so. She said she’d feel comfortable putting a property on the market on Dec. 21 — a typically slow time in real estate — “and I think it would go that day if it was well priced.

“There are a lot of buyers out there,” Ms. Barlow continued, “and there is really nothing for them to purchase.” And if they find a place that suits, they may be outbid. “People are coming in all cash and over ask.”

Unable to find an apartment to move to, some prospective sellers are also waiting it out. “I don’t want to stress about my apartment selling and not having a place to go,” said Karim Tartoussieh, a graduate student at New York University who for two months held off listing his prewar Chelsea one-bedroom while he searched for a two-bedroom for $1.5 million to $1.8 million.

But even though he hasn’t found a new home, he listed the one-bedroom last week because he was convinced by his new broker, Anthony Santangelo, an executive vice president of Douglas Elliman working in the Greenwich Village office, that now is a good time to test the market.

Mr. Tartoussieh’s initial hesitancy is not unusual. “It’s like being on a treadmill,” said Stan Humphries, the chief economist of Zillow. “First-time homebuyers get on and everyone steps forward to a higher realm of housing.” But many repeat buyers, faced with tight credit and low to negative equity, can no longer afford that next step up in housing. As a result, he said, “everything has ground to a halt.”

Another factor: Banks continue to offer the best rates only to candidates with the strongest credentials. Prospective borrowers who are self-employed or who receive a large portion of their income through commissions and bonuses meet with resistance — even if they have high incomes and solid credit scores.

“One mortgage broker told me with 50 percent down I could get a loan, but my rate would be ‘brutal,’ ” said Shannon Aalai, a senior associate at Citi Habitats, who is self-employed and has zero debt, as well as a credit score of 790 and more than $100,000 saved for a down payment. “It’s the people that did everything right that are being punished for this. We weren’t involved in the subprime mortgage crisis.”

Without a reasonable loan, she said, she watched as her dream apartment, a one-bedroom condo for $650,000 in the Gramercy area, came and went.

Other strictures on lending are also thwarting buyers. That’s what Lynn Lussier, a technology sales executive who lives on the Upper West Side, found out earlier this year after putting down a deposit on a renovated one-bedroom listed for just under $800,000. Because the management company still owned more than 50 percent of the apartments in the building, few banks were willing to take the risk that the sponsor could default. The banks that did required a minimum of 30 percent down.

“I’m willing to put down 20 percent,” Ms. Lussier said, “but do I want 30 percent of my liquidity tied up in this apartment?” She ended up renewing the lease on her $5,500-a-month one-bedroom in October. “I kind of got very frustrated with the process,” she said, “and then it became an issue of low inventory — there was really nothing out there I liked.”

Still, all hope is not lost. Aggressive buyers who can act fast are landing contracts. For roughly a year, Walter Saraniecki, 28, a commodities trader, has been scouring the listings for a two-bedroom two-bath apartment for $1.5 million to $2.5 million in Chelsea and visiting anything close to his parameters. His broker, Lindsey Owen of Town Residential, even set up a standing daily 4 p.m. appointment to discuss any new listings, in order to set up showings quickly. “We probably looked at 150 to 200 apartments over the course of the year,” she said.

In October, Mr. Saraniecki saw a listing for a renovated top-floor duplex with a private terrace, a block from the High Line. He was among the first in the door at the first open house.

“It was packed,” he said. Mr. Saraniecki liked what he saw and offered to pay the asking price on the spot. “We’ll just take it,” he recalls telling the seller’s broker. “Please, we’ll take it.”

“If I didn’t see so many of these places,” he said, “I don’t know if I would have been as aggressive. We went into a deal with all of my paperwork within 12 hours of seeing the place. You really have to be confident you’re making the right decision.”