Advantages aplenty for retirees in downsizing

By Sandra Block

Kiplinger’s Personal Finance

Formany retirees, downsizingmakes financial and practical sense.

Asmaller house or condo typically requires less maintenance andmay be more accessible than a two-story suburban house. And at a timewhen homeowners age 62 and older have more than $12 trillion in home equity, downsizing offers away to free up some of that equity for other purposes, such as shoring up retirement accounts or saving for long-term care.

For retirees Fred and Shelby Bivins, selling theirhome in GreenValley, Arizona, will enable them to realize their dream of traveling in retirement. The Bivinses have put their 2,050-square-foothomeon the market and plan to relocate to their 1,600-squarefoot summer condo in Fish Creek, Wisconsin, a small community about 50 miles from GreenBay. They plan to live inWisconsin in the spring and summer and spend the winter months in a short-term rental in Arizona, where they have family.

With help fromChrisTroseth, a certified financial planner based in Plano, Texas, the Bivinses plan to invest the proceeds from the sale of their home in a low-risk portfolio. Once they’re done traveling and are ready to settle down, they intend to use that money to buy a smaller home in Arizona.

"Selling their primary home will generate significant funds that can be reinvested to support their lifestyle nowand in the future," Troseth says. "Downsizing for this couple will be a positive on all fronts."

For all its appeal, downsizing in today’s market is more complicated than itwas in the past. With recent 30-year fixed interest rates on mortgages above 7%, many younger homeownerswhomight otherwise upgrade to a largerhome are unwilling to sell, particularly if it means giving up amortgagewith afixedrateof 3% or less. Asaresult, buyers are competing for limited stock of smaller homes, saysHannah Jones, senior economic research analyst forRealtor.com.

Here, though, many retirees have an advantage, Jones says. Rising rates have pricedmany younger buyers out of the market and made it more difficult for others to obtain approval for a loan. That’s not an issue for retireeswhocan use proceeds from the sale of their primary home tomake an all-cash offer, which is often more attractive to sellers.

Retirees also have the ability to cast a wider net than younger buyers, whose choice of homes is often dictated by their jobs or a desire to live in awell-rated school district. While theU.S. median homeprice has soared more than40% since the beginning of the pandemic, prices have risen more slowly in parts of theNortheast and Midwest, Jones says.

"We have seen the popularity ofMidwest markets growover the last few months because out of all of the regions, theMidwest tends to be the most affordable," she says. "You can still find affordable homes in areas that offer a lot of amenities."

Asmaller house or condo requires less maintenance andmay be more accessible. DREAMSTIME