"If you cannot sleep at night…that house can pay off all of your debt," says mortgage expert
Downsizing is no longer a choice – it’s becoming something of a necessity for many aging Americans. According to research from Merrill Lynch, 64% of retirees have considered downsizing, with 41% adding that they intend to downsize in their next move.
A cost-of-living crisis coupled with inflation and mounting rates means that for many the benefits outweigh the stress of moving in later life. Speaking to MPA, Elena Boland (pictured), from Wholesale Mortgage Services, said she’s seen a boom in the number of downsizing clients over the past few years – especially in the Northern Nevada market.
“Downsizing isn't just a financial decision; it's about improving the quality of life,” she said. “Many seniors in our area are moving from larger homes with high maintenance to more manageable living spaces. We've actually been putting together entire programs and teams just for helping seniors.
“A lot of seniors own homes in a neighborhood where the snow load is a lot of work for somebody, and it's a lot on the property. If your home is starting to age because you've lived there 20-30 years, you're seeing the maintenance cost and the actual physical work go up quite a bit."
To assist with this transition, Boland's team guides seniors through a step-by-step process that includes assembling a trusted team of professionals.
Demand outweighs supply
"We're suggesting, in support of them, to assemble a team of advisors: your realtor, your lender, your financial advisor, CPA, insurance professional, organizer, to help you get the emotional side of the transaction into play,” Boland said. “[And] we try to take it through a three-series in-person appointments. We don't overwhelm them, but of course, giving them the videos and the suggestion of a team as well.”
While the demand for senior-friendly housing is growing, the supply simply has not kept up. Research from The Wall Street Journal found that development of senior housing skidded to a halt during the pandemic – so much so that in order to meet high demand by 2030, over 550,000 new homes would need to be built. And, while certain new communities are going up slowly, they’re not necessarily aligned with what downsizing buyers are looking for.
"There’s a small number of senior communities available here, unfortunately,” Boland said. “So it’s a little tough, because honestly, they cannot build them fast enough to keep up with the demand. So many people are just choosing to downsize anywhere in town, essentially, as long as they can get that smaller home."
This demand for downsizing and freeing up much-needed equity in homes is indicative of larger industry trends at play. Rising mortgage rates, increasing property values, and a lack of suitable inventory are creating obstacles that many buyers feel unprepared to navigate.
“It's not just rising rates that we're dealing with,” Boland said. “[There’s] also values increasing because they’re healthy right now, which, of course, means prices are increasing. A starter home here in Northern Nevada is around a $500,000 purchase. So if somebody's been sitting on the market deciding to buy because rates were higher, now that house is $530,000."
‘It's actually costing people more money’
And the hesitation among buyers is creating a slowdown in market activity, which in turn is pushing prices even higher. Here, Boland said she’s focused her efforts on educating potential buyers about the long-term cost of waiting.
"We're dealing with some people feeling uneasy, and it's creating a lack of movement – because of that, it's actually costing people more money,” she said. “I've just been doing my best to educate, and we're doing that by putting a lot of podcasts and videos out there to help with our local market specifically. And we just tell them about that issue, and we give them three specific strategies. One is finding a home where you can negotiate an interest rate credit by the seller helping you buy down your interest rate. I can save $300 a month depending on their loan size."
Another key factor in affordability is property taxes, and Nevada has unique policies that can benefit buyers. Unlike many states where property taxes reset based on the sale price, Nevada allows new homeowners to inherit the previous owner’s lower tax bill.
"Nevada has two very unique pieces that help calculate your property tax. One is that the taxes are not recast upon sale, which is lovely because [in] most states, you buy a home for $500,000, and that is what the tax is built off of,” Boland said. “In Nevada, you operate off of the old owner's tax bill. So you can find a $500,000 home with a $1,200 tax bill."
However, this tax advantage does not apply to new construction, meaning buyers must be aware of the potential financial impact.
"If they buy new construction in Nevada, and there's no depreciation applied, that can increase their house payment [by] $600 per month," she said.
‘If you cannot sleep at night…that house can pay off all of your debt’
For homeowners struggling with high consumer debt, selling their current home and using the equity to pay off debt can be a game-changer. While this approach means taking on a higher mortgage payment, it can provide significant monthly savings by eliminating credit card and loan payments.
"This sounds interesting, and it sounds like something you don't want to do, typically as a homeowner, because most homeowners have a 3% or lower interest rate,” Boland said. “But we’re telling people, just consider it and look at it. If you cannot sleep at night and you are drowning in consumer debt, that house can pay off all of your debt. And yes, you will leave with a higher house payment. You can go buy a new house, but you might leave with a positive cash flow improvement of $1,500 per month. You're not drowning anymore, and you can sleep at night and breathe again. We have actually about six in escrow right now that are selling their home to clear out all of their debt and go buy something different, and it is really just saving their sanity. And that's the biggest thing, is we want people to feel better about their whole financial picture."
