America's Financial Solutions Group
1635 Foxtrail Dr.
Loveland, Colorado 80538
If you plan to sell your current home and move to a smaller one after retirement, you may be in for a shock. While it’s tempting to see “downsizing” as an easy way to lower costs in retirement, the new economic reality may make it much more difficult to realize those savings. Home values have gone up nearly 9% in the last year, making the effects of downsizing much less dramatic. In 2020, for example, homeowners aged 65-75 who downsized from an average home valued at $340,000 often ended up purchasing a smaller home costing around $250,000.
These small savings reflect the tight housing inventory and fierce competition for smaller “starter” homes. Retirees seeking to downsize will find themselves competing with first-time homebuyers looking for lower-priced, smaller houses. Also, mortgage rates are ticking slowly upward, making purchasing a new home much more expensive. With the current median home price in the US at over $312,00, downsizing in both cost and square footage may not be easy to achieve.
Although moving to a smaller home seems logical for many retirees and pre-retirees, you must do the math first. It’s advisable to include your financial advisor or advisory team when you consider downsizing to ensure it makes sense in the long term.
Summing it up.
In the past, downsizing was an effective way for retirees to reduce their monthly expenditures significantly while retaining their independence. However, we currently have an unpredictable housing market made worse by a lack of inventory and speculation, along with inflation and near-zero interest rates. The savings from downsizing, then, are not as dramatic as they have been in previous years. Retirees should consider the long-term effects before deciding to leave their current homes.
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