Should I Downsize? What to Consider When Going Smaller

People move for a myriad of reasons. They get married, they suddenly have two incomes, or they get divorced, suddenly hate space and decide to move to downsize.

And, when we look at generations, they tend to move for different reasons as well. When they looked to live in their first home, older generations tended to stay in the same place, town and job their whole lives. Today, we have starter homes and condos (a relatively new concept). People relocate a lot more frequently for different factors.

Even though these generalizations hold mostly true, older generations are beginning to move at a higher frequency to simplify and downsize their lives, now that the kids are gone.

But why do people think about downsizing? What’s driving the trend in tiny homes, RV living, perma-travel? Magazines love to espouse the trend of the simple life, but is the reality a bit more tepid?

Let’s dive in and see what is driving older generations, and younger ones as well, to make the move and downsize.

For Retirement

“The only people I see truly downsizing right now are older folks, either retiring or moving to somewhere like Arizona,” agent Michael Gerhardt told me.

“There are two ways you can go if you want to downsize, either to reduce costs or simplify your life. You can move to a smaller house or condo in the same general area. Or you can go to another part of the country, or another country, with a lower standard of living,” Gerhardt said.

Many people over the age of 50 are downsizing to renting again after selling. This may be partly due to the ease of renting, and renting takes the responsibility for upkeep and manual tasks off your shoulders as you get older.

For healthy, older people, when they can let go of the home in the burbs where they raised their children, they think of moving to an apartment as an upgrade. “With work in the city, people will move to a condo downtown and have a better lifestyle as they get older. Everything’s walkable, public transit and taxis everywhere.”

But the financial benefit depends on the equity you have in your home and the market in which you sell your home.

I Owe, I Owe

If they are not constrained financially, people will tend to move up in size and scale as their family grows. But downsizing housing is also the first way people think about tackling debt.

Boomers are also closely watching their equity, thinking they may not have enough retirement and need the infusion.

It’s a way to get cash out, as the first $250,000 gain a seller makes on a home they’ve occupied for part of the last five years is generally not taxed. So, when people move from owning to renting, they’ve got cash in pocket. Whether or not it is smart to sell at any given time, sometimes we have no choice.

To reap the benefit, you have to downsize cost of living, and that often means the neighborhood or town you live in.

“But people don’t want to move far, usually. Taking into account the whole cost (and time/energy cost) of the process, you have to see what benefits really are to going through the process now­­­­.”

For younger people, they need to look at their financial situation and the current climate. Many people have come through the housing collapse, but still, struggle to overcome credit card or college debt.

“There’s still foreclosure activity, especially in parts of the South Side and the suburbs,” Gerhardt said. “But the most desired areas of Chicago have recovered from the slump caused by the downturn.”

Though young people are still saddled with debt, they have been buying into a low market on very good interest terms. This will recover lots of wealth for them, over their lives.

We have a great reluctance to clearing out (read: change). When you’ve lived in a place a few years, stuff tends to accumulate. So to overcome the resistance, sell the house! Then we’ll have to do it. It’s making a big change to force several smaller ones.

“The thing people need to do, what many are reluctant to do, old and young, who are over their heads, is to try to significantly reduce monthly costs before they even think of moving,” Gerhardt said.

Relocating?

This is a good moment to downsize. You’re already thinking of moving. You can assess your use of the space you’ve been living in now for years, refining the idea of what you want.

Do you like to cook? Find a great kitchen? Are your peonies the prize of the neighborhood? Get a place with a nice sunny garden. Trouble sleeping? Maybe you want cozy bedrooms in the back of the property.

Some are going smaller. The tiny house movement reflects this trend, though it has very little happening in Chicago, outside of a few historic buildings that survived the fire, for the most part, and a few housing renegades living in yurts and such.

But the trend is on to simplify life.

People are shunning overly large houses with tons of unused rooms to concentrate on the whole property. Gone are the days when it seemed a good idea to cover a whole lot with the building.

Now, you see more mixed uses of space on properties. Indoor and outdoor blending, porches, gazebos, gardens and patios.

Relocation is one of the best ways to downsize, potentially. So, if you think you’re going to be moving in a few years anyway, it may make sense to wait.

Reality Check

How much will you really get from selling? “If you bought 30 years ago and your house hasn’t gone up much in value, that’s disappointing,” Gerhardt said of many older sellers.

How will your expenses change? Get specific about the cost of living in your new place, uncovering any hidden costs you might not think of at first.

If the trend toward smaller homes near the city continues, it will be harder to sell these big houses. The market in McMansions is flooded in the ‘burbs, but in the city’s popular neighborhoods it’s a seller’s market. This benefits younger buyers. It only really benefits sellers if they are moving away.

We tend to downplay the costs of buying. One woman moved to a senior community in a nearby municipality and ended up paying significantly more taxes, an unforeseen consequence. The cost of amenities and monthly dues can be high in these places, too.

We also tend to overestimate the savings of moving. The Boston Globe reported that after selling the house, paying the mortgage when all is done people end up $26,000 richer.

“Don’t assume some great windfall. After paying off their old mortgage, maybe getting a lower selling price than they thought, many Boomers have counted on the equity in their home, especially as investments have been up and down. When they sell they’re coming up short,” Gerhardt said.

Emily Johnson

Emily Johnson is a writer, researcher, editor, and publishing consultant with a decade of learning in the field. For Truepad she covers real estate trends and develops knowledge base articles that help people learn about the process of buying as they’re looking for a home. She went through the process herself two years ago and is a proud homeowner in Logan Square.

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