There are a number of reasons why you may downsize your home in retirement. Perhaps you’ve simply tired of excess space after your kids go off to college. Maybe you’re looking to move to a more expensive location and don’t want to take a financial hit by doing so. Or, perhaps you’ve made the decision to sell your large home and buy a smaller one, deeming this one of the smartest ways you can save money in your golden years.
And you may be right; there are so many financial benefits to downsizing, but, surprisingly, there are cons, too, particularly in the current housing market and economy at large. But why exactly might downsizing your home for retirement not be worth it in 2024?
Here’s a dive into the current downsides of downsizing.
You’ve Locked in a Low Mortgage Interest Rate
Mortgage rates have been getting steeper over the past couple of years. If you have a low one locked in from before, it could be wiser to hang onto it than to buy a new home at a higher interest rate — even if the home is cheaper than where you live now.
“If your interest rate is below 4%, it is probably better to keep your current home,” said DJ Olojo, host at The Foreclosure Fix Podcast. “Downsizing often makes sense to reduce costs and live in a space that is easier to maintain, but moving in 2024 will probably cost you more money due to higher interest rates and a lack of inventory.”
There Is Limited Inventory
Downsizing may not even be feasible, considering the severe lack of inventory across many housing markets, which drives prices up and makes it hard to find the right spot.
“Supply and demand in certain areas creates some challenges for sellers to find a smaller property that meets their needs in the same or surrounding towns,” said Anthony LaTorraca, co-owner at LaTorraca Realtors.
Moving Costs Are Steep Right Now
Also on the rise of late are moving costs, so while you may save money on a smaller home, you’ll pay quite a lot to relocate to it — especially if you’re planning a long distance move.
“The costs of moving can add up quickly, especially now, which would offset your savings from downsizing,” said Shannon Feick, co-owner and co-founder at ASAP Properties, LLC.
The Economy Is Uncertain
No one, no matter how informed and confident they are, can precisely predict what will happen to the economy throughout the rest of the year and beyond. If things get rocky, buying a new home — no matter the size — could be risky.
“There are many economic uncertainties in 2024,” LaTorraca said. “Fluctuations in both the market and real estate market could make it difficult to downsize at an affordable price.”
Lack of Space Could Be an Unwelcome Surprise
Downsizing might sound like a great idea, but is it a great reality? You need not only consider your finances, but your comfort level and needs in a home.
“The shift in lifestyle demands triggered by the [COVID-19] pandemic has also influenced homeowners’ preferences, with a growing inclination towards larger spaces to accommodate remote work and personal leisure areas,” said Ioannis (John Kadias) Kantias, of PR and marketing at CubiCasa. “Downsizing could compromise these needs, which are increasingly becoming essential.”
You May Be Emotionally Attached to Your Home — And That Matters
Yes, when you retire, you should keep savings top of mind, but you should also prioritize your mental health and remain active in a community. Consider whether leaving your familiar surroundings could be detrimental to your lifestyle.
“Sentimental attachment to a seller’s current home may make it difficult to part ways, even if downsizing makes financial sense,” LaTorraca said. “In some scenarios, downsizing may not align with the seller’s current or future lifestyle needs, such as accommodating family visits, hobbies or potential caregiving arrangements.”
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