When I mentioned security as a reason to downsize, I was thinking
particularly in terms of homeowners. True, a renter (or houseboat owner!) can
downsize and save; can divert some outflow of cash to a nest egg, for instance,
that would add to a greater sense of security.
But the homeowner is in a special category – a special predicament,
we might even say… Because the clock is ticking in a very real sense on this
whole downsizing concept: If you don’t do it soon-ish, you may have far less
to add to your financial security.
Regardless of any real estate market downturn caused by the sloppy
mortgage fiasco (or anything), sooner rather than later would be good.
(And we don’t know precisely when
"later" will be – the time past which you will have really missed
the boat). Here’s why...
There are said to be 76 million Baby Boomers (born between 1946 and 1964) in
the U.S., as of 2006 – and another American Baby Boomer turns 50 every 7
seconds! Of course, the overall number of Baby Boomers will dwindle as time goes
on… But 13% of the population is 65+ in 2006, and one out of five will be
"seniors" by 2030 (and more and more of them will likely live to be in
their 90s – or even 100s!). The proportion of Boomers to the following
generations is great, for a long time to come – and this affects so many
aspects of society that it’s well to take the implications seriously.
Huge numbers of Baby Boomers are at or nearing the expected retirement age,
many are already taking early retirement… and are feeling (or will soon feel)
the pinch of a smaller income. That means that more and more of them are going
to be turning toward selling off their present "too much" homes and
looking for less expensive, simpler solutions, housing-wise.
That’s fine; maybe they’ll do a bit of trading with a portion of the
up-and-coming generation that wants to expand… for awhile. But we need
to do the simple math here… Because a quick look at the numbers tells us that
there aren’t nearly enough buyers in that whole younger couple of generations
to take up the slack when the Baby Boomer homeowners get the downsizing idea en
masse. And when supply (homes) and demand (potential buyers) go out of whack
(not enough buyers for the supply), suppliers take a loss – the housing market
Will you be in sync with this early group of problem-solving downsizers –
will you be "housing wise"? – or will you wait… and take
whatever comes in turn? It may be that waiting is what you feel you need to do,
for any of a variety of personal reasons. However, a lot of people are waking up
to the fact that sooner is a far better time to act – because with later, you
As housing values fall, you will likely have to accept less and less profit
in selling (and will have a greater and greater need to downsize as time
goes on, I would think!). And as your profit decreases (perhaps even into loss), so too, chances are,
will what you have to pass on to your heirs.
The idea of trading down to a smaller dwelling place makes good sense in many
ways. Obviously, you can recoup some cash and/or raise your equity in the next
home if you downsize; this would protect you from the precariousness of a
too-high mortgage if something were to change in your financial picture.
Downsizing your mortgage certainly takes the pressure off by reducing what you
need to earn/pay out to survive in your chosen home in the future. (And if you
work it right, you could considerably lessen some of your related expenses as
well.) But some real estate experts say that when the housing market falls,
bigger homes lose more value than small ones – so that even if nothing else
were to improve, you’d likely be in a better position to weather the storm
than others who continue to "live large".
There is value in a home, any home, that is already paid for, if it
prevents you from having to lay out money in mortgage payments. But - even
without a mortgage to pay on each month, the upkeep expenses for a big
house are far greater than for a small house (think in terms of property tax,
insurance, heating/cooling, and maintenance expenditures). It may very
well make far more sense (if you can stand to move) to "trade" it for
a home of proportionately less market value while banking the difference and any
ongoing savings as well. If the place and/or the time isn't favorable, passing
on the family home can be more of a liability to heirs than jettisoning
it now and, say, setting up financial trusts for their (and your, if you like)
If you are in a quandary about this, you may want to talk to your heirs
and/or see a financial adviser. Regardless of the economy's ups and downs for
other reasons, the impingement of Baby Boomer reality on the housing market