Why Downsizing Your Home Isn’t the Money Move It Used to Be
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What is the main topic discussed in this episode?
This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. Listen at schwab.com slash Washington Wise.
Here's your money briefing for Friday, October 13th. I'm J.R. Whalen for The Wall Street Journal. Many Americans approaching retirement put downsizing their home on their to-do list to buy a smaller house to fit their needs and to raise some extra cash. But downsizing isn't the sure thing it once was.
Home values have really gone up so much, making people's homes a lot more valuable than they were just five, ten years ago. And so for those who have lived in the same home for decades, if you go to sell, you could face some really significant capital gains taxes.
What options do prospective downsizers have?
How common is downsizing among older homeowners today?
We'll talk to Wall Street Journal personal finance reporter Veronica Dagger after the break.
This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. Listen at schwab.com slash Washington Wise.
Older Americans often downsize to a smaller house to simplify their lives and bolster their finances. But in the current economy, the math might not be in their favor. Wall Street Journal personal finance reporter Veronica Dagger joins me. So, Veronica, how common is downsizing among retirees?
What size homes are retirees actually shopping for and what is available?
Well, about 27% of sellers traded down for a smaller home, and that's according to a 2023 report from the National Association of Realtors. The largest downsize was among homeowners ages 77 to 97, and those folks scaled back by around 220 square feet.
How small a home do older Americans typically shop for, and what are they finding in the market?
those homes are about 750 to 1,750 square feet. And that is a tough market to be in right now because the number of homes for sale in that category has dropped about 41% since 2019. But prices for those homes are about 50% higher than they were pre-pandemic.
How have prices and inventory changed for smaller homes since the pandemic?
And that's according to research by realtor.com.
Wow, it sounds like the same set of issues that are facing younger Americans who want to buy or move.
It's very similar. Yes, they are competing for a small amount of houses, dealing with high prices. The added stress for older Americans is that they may be on a fixed income. They may not have income coming in every month either, as some of the younger counterparts might. And so their budgets are already stretched by things like inflation, like many of other people, but they may not have some of the earning power, financial flexibility that someone younger might have.
How are mortgage rates affecting older Americans' ability to downsize?
The 30-year fixed mortgage rates are nearing 8%. And so downsizing is often really costly for those who can't pay cash. A smaller home could translate into bigger monthly home payments. And that further stretches the budget of people who are already on a fixed income. So it's not really a great option financially.
How are current mortgage rates affecting retirees' ability to downsize?
But if people have built up equity in a much larger house, wouldn't a sale allow them to afford a smaller place even if prices have gone up?
For sure, and they might not even have to take a mortgage on it. That's kind of the ideal situation, and we are seeing a lot of older buyers paying in cash and driving a good part of this housing market. The issue is, though, home prices are still high, so you still get less for your money. Even if you downsize to something smaller, if you look at a cost per square footage basis, you're essentially paying more. Not to mention, no one is immune to these things like rising home insurance premiums, and in many cases, rising home property taxes. And so, you're dealing with all of these factors that essentially you're getting less for your money.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:00–0:59
2
How common is downsizing among older homeowners today?
0:59–2:00
3
What size homes are retirees actually shopping for and what is available?
2:00–2:48
4
How have prices and inventory changed for smaller homes since the pandemic?
2:48–3:50
5
How are current mortgage rates affecting retirees' ability to downsize?
3:50–4:58
6
Can selling a large home and using cash still make downsizing financially viable?
4:58–5:29
7
What nonfinancial reasons are prompting people to downsize despite the costs?
5:29–6:51
8
Are there tax reasons to delay selling your home instead of downsizing now?
6:51–8:02
Speakers
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