As boomers reach retirement age, they are seeking a more carefree lifestyle by reducing the square footage of both house and yard, and purchasing more new and easily maintained homes. Low mortgage rates are working in their favor and allowing buyers more flexibility in determining what they want in purchasing a new home. While many buyers are downsizing square footage, they are not necessarily reducing their home’s value.
Although retirees may downsize square footage for ease of care, they often upgrade other aspects of their home and may look for a home location that offers greater amenities. Many are considering downtowns and city centers, where shopping, entertainment, public transportation and other amenities are conveniently located nearby. In contrast, some empty nesters may need to liquidate their home and downsize in order to provide needed funds for retirement living expenses. In these cases, the buyer has less flexibility and must prioritize affordability over amenities.
When homebuilders are advising potential buyers, it is important to seriously consider how much space the buyer will need to accommodate family visits and retained possessions. Buyers should be advised to plan ahead and not wait until a major life event forces the decision to relocate and avoid making such important decisions during time of crisis. And lastly, buyers should understand the tax implications when they sell their home and purchase a new one. In general, the sale of a principal residence that results in a profit of $250,000 for a single homeowner or $500,000 for a married couple filing jointly will not be subject to a capital gains tax. This and other tax issues should be considered when buyers are considering downsizing.