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Shedding square footage could prove more difficult than expected.
There are different reasons why people make the decision to downsize their living space. If you’re nearing retirement, for example, and your kids have grown up and left the nest, it may not make sense to hold onto a larger home with space you don’t need. Downsizing might allow you to lower your housing costs so you can use your money for other purposes, like padding your IRA account.
Even if you still have young kids living with you, you may be reaching the point where you’re finding it difficult to keep up with your home — both financially and logistically. If you have a larger home, you may be tired of spending your weekends mowing the lawn and dealing with upkeep. And if your property taxes recently went up a lot, that alone could be driving you to think about downsizing.
But while downsizing can be a big source of savings, now’s a pretty tough time to try it. Here’s why.
1. There’s not a lot of inventory
Just because you’re downsizing doesn’t mean you shouldn’t be happy with and comfortable in your new home. But right now, there’s very limited housing inventory available across the country. And so you might struggle to find a smaller home that meets your needs.
It may be that you can’t find a place to live in the neighborhood you want to stay in or settle down in. Or, you may have your heart set on a standalone home to downsize into, but it’s only townhouses and condos that are on the market in your neck of the woods.
Once housing inventory opens up, downsizing may be easier. But right now, limited inventory could make downsizing difficult.
2. Home prices are still high
Although home price gains have been slowing down, housing prices are still elevated as a whole across the country. And because there’s been a particular shortage of homes on the lower end of the market, you may find that a smaller home doesn’t end up being as inexpensive as you would’ve thought. And if you’re not going to reap the savings you’re after, then it may not be worth it to deprive yourself of square footage.
3. Mortgage rates are high
If you’re older and have a paid-off home, you may not need to take out a mortgage loan to buy a new one. Rather, you might sell your home for enough money to buy a smaller one outright.
But it’s not just retirees or near-retirees who might choose to downsize. And if you’re downsizing after only having lived in your home for a few years, you might still have a hefty mortgage to pay off — and you might need a new mortgage to finance a home purchase. But because mortgage rates are so high right now, a new home loan could get expensive — to the point where you’re not saving much money at all.
While downsizing does tend to offer financial benefits, now’s just a really hard time to do it. And so you may want to consider holding off on downsizing if you’re struggling to find the right replacement home or are finding that you won’t be able to save the money you expected.
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