A Quandary for Home Downsizers

Today’s housing market is showing a few signs of perking up, but can be especially frustrating to one group: downsizers.

These are folks who want to move to smaller homes. Some are retiring, some have become empty nesters. Some have tired of the hassle and expense of maintaining large homes. Others want to convert home equity to cash.

In some respects, this looks like a perfect time to downsize. Prices of less-expensive homes have fallen dramatically, and it seems like there are bargains everywhere. Also, prices seem to be falling more slowly, suggesting one could buy a cheaper home without too much worry that its value could fall even further.

But there’s a catch: many experts think prices of higher-end homes still have a good way to fall, perhaps 10% or more. While that may argue for selling now, it has left buyers skittish. So homeowners with bigger, more expensive homes may be stuck with them for some time, unable to free up the cash they need to buy the smaller homes that are so enticing.

Some of these homeowners may be able to support two homes for a time. But this generally requires some combination of having a lot of equity in the larger home and a big enough income to support two mortgages.

One option for people who are not in that situation is to rent out the bigger home to cover expenses, thereby increasing income enough to qualify for a mortgage on the new property. Use the Maximum Mortgage Calculator to figure how much you could borrow based on the best rates uncovered by the shopping tool.