To Downsize or Not to Downsize?
Historically, downsizing from a larger home to an apartment, or smaller home has been considered a way for empty nesters or retirees to lock in financial gains, and cut monthly expenses.
But given the state of the housing market, this decision is no longer guaranteed to result in either.
Two major drivers keeping the cost of home ownership high are low supply and high interest rates.
America has been grappling with a housing deficit for years. High material and labor costs, which shot up during the pandemic, made matters worse. The number of homes available at an ideal size for downsizers — 750 to 1,750 square feet — has dropped some 40% since 2019. And with limited availability, come at times hefty price increases.
On top of that, interest rates have climbed over the past years as the Federal Reserve hiked its benchmark rate in its fight against high inflation, which also left its mark on mortgage rates.
Who Should Downsize?
If you have a significantly lower mortgage rate than the current average, trying to downsize might result in larger monthly payments for a smaller home. That said, mortgages can be refinanced when rates move lower again, so your payments might not stay the same forever.
It’s also important to balance the cost consideration with the other potential benefits of downsizing, such as less upkeep and maintenance requirements, or the opportunity to move closer to family and loved ones.
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