Pros and cons of downsizing your home
Andrew Dehan BANKRATE.COM
It’s not just retirees choosing to downsize — with today’s elevated housing costs, many people are looking to smaller properties for relief. In fact, 44 percent of U.S. adults who would be willing to make a sacrifice to find more affordable housing say they would consider downsizing their living space, according to Bankrate’s 2024 Home Affordability Report.
But living smaller comes with its challenges. Let’s weigh in on why people may want a smaller footprint, as well as the benefits and drawbacks of downsizing your home.
Why buy a smaller house?
The short answer is, to save money: High mortgage rates and even higher home prices are two major reasons people look to buy a home that’s on the small side. A lower price tag on your house means borrowing less money to make the purchase and paying less interest over time.
But location is another reason people may choose to live smaller. Many people will opt for convenience, abundant amenities and a shorter commute to work over more square footage.
“Usually, it’s more expensive to be closer to a big city,” says Maggie Johndrow, partner and financial advisor at Johndrow Wealth Management in Connecticut.
Living with a smaller footprint can have many benefits, both for your finances and your lifestyle.
Reduced expenses
Opting to live in a smaller
U.S. 30-year mortgage rate falls to lowest level in 16 months
Ann Saphir REUTERS
The interest rate for the most popular U.S. home loan slid to its lowest in 16 months, after Federal Reserve Chair Jerome Powell signaled the central bank was ready to lower borrowing costs next month to keep the job market from weakening further.
The average contract rate on a 30-year fixed-rate mortgage fell 6 basis points in the week ended Aug. 23, to 6.44 percent, the Mortgage Bankers Association said on Wednesday. That was the lowest since April 2023.
The decline in mortgage rates, by 38 basis points in four weeks, has kept refinancing applications elevated, as homeowners who bought when rates were even higher moved to lock in lower monthly payments. The MBA 30year average rate topped out at 7.9 percent last October.
Mortgage applications and purchase applications edged up just 0.5 percent and 1 percent respectively, as would-be homebuyers hold out for a further drop in rates.
Interest-rate futures reflect bets the Fed will cut short-term rates by a full percentage point by the end of this year.
Rising borrowing costs and a limited number of new and existing homes offered for sale have helped make home ownership increasingly out of reach for many. Democratic presidential nominee Kamala Harris and her Republican rival Donald Trump have made housing affordability integral to their pitch to voters in the November presidential election, with both promising to reduce costs for Americans in different ways.
A home on the market in Shore Acres, a neighborhood on Tampa Bay in St. Petersburg, Fla., on Monday, June 3, 2024.
home can translate to bigger savings in maintenance and upkeep.
“A smaller home means smaller utility prices and not having to buy as many goods to fill it up,” says Johndrow.
Property taxes and home insurance premiums are often lower when you choose a smaller and less expensive home, too.
And small homes usually have easier-to-manage yards as well — something to keep in mind for lawn-care and landscaping costs.
More minimal lifestyle
Having a larger home can also mean more work. Not only do you have to keep up with maintaining the house itself, but you also have to take care of everything in it. For Erin Hybart, a real estate agent in Louisiana who
specializes in tiny homes, living smaller translates to simplicity.
“People are spending their lives working to pay for their house, and then even more of their time cleaning it,” Hybart says. In addition, when people have large homes with plenty of storage, they can easily forget about their belongings and get overwhelmed by their stuff.
Another plus: Having to spend less time and money on your house, and the stuff in it, opens up other opportunities, such as pursuing education or traveling.
More environmentally friendly
Larger homes require more energy to keep running, particularly when it comes to heating and cooling. And outfitting a
large home with energy-efficient appliances and lighting can be expensive, as are new windows and upgraded insulation. If you’re eco-minded, it may just be easier to live in a smaller space.
Greater focus on life outside the home
When you choose to live smaller, you often shift your focus away from spending time in your home. You may find yourself using your outdoor space more, such as relaxing on the porch or in a hammock instead of in your living room. And for those in more scenic areas, that could mean enjoying the great outdoors with activities like hiking or fishing.
People who live in cities might make more use of the city’s amenities and entertainment options.
For some, a smaller space can be a positive, but for others, it’s decidedly not.
Less space
Obviously, living smaller puts you in closer quarters with your family. This isn’t always a plus — it can cause serious friction, especially if you work from home and/or have a large family. And if your area has limited entertainment options or outdoor activities are limited due to weather, small spaces can begin to feel cramped very quickly.
Greater expenses
In some circumstances, downsizing your home can actually mean more expenses instead of less. For instance, if you bought your current home several years
ago, it’s important to keep in mind that home prices have increased significantly since then. Look into whether a new home in your desired area, even if it’s smaller, might cost more than what you can sell your current home for, says Johndrow.
“Are you willing to use cash to pay for the smaller home, from the proceeds of your larger home, or are you going to get a mortgage?” says Johndrow. If you’re getting a mortgage, she says, keep in mind that interest rates are much higher now than they were just two years ago.
Another thing to consider is whether your new home is part of a homeowners association. Many smaller homes are, especially in new developments, and HOA fees are something to budget for.
Limited options
If you’re looking for a smaller property, you may have to look harder than most. The average size of a new home in 2023 was 2,411 square feet, according to the National Association of Home Builders. While this is a 13-year low, it’s still much larger than many looking to downsize might need. To find a smaller single-family home, you may need to be willing to buy an older home, and possibly be flexible about its location.
This is especially true for a trendy tiny home, for which residential zoning is another factor to think about. Finding a place to build a tiny home can be tricky depending on the zoning in your area, Hybart says. They can also be difficult to fund with a traditional mortgage.
ZACK WITTMAN / THE NEW YORK TIMES
