Why 2022 May Be a Great Time to Downsize Your Home

You could end up with a nice profit on your hands.

The decision to downsize isn't an easy one. On the one hand, downsizing could mean slashing your monthly mortgage payments, property tax bills, and maintenance costs. And at a time when inflation is soaring, that may be helpful or even necessary.

On the other hand, downsizing could mean having to make compromises, like adjusting to a smaller living space and also, depending on circumstances, having to relocate to a new neighborhood. If you have kids in the mix, that's easier said than done.

Still, if you've been toying with the idea of downsizing your home, now may be a good time to go about it. Here's why.

It's a great market for home sellers

These days, the real estate market is starved for housing inventory, and that's given sellers a major advantage. In fact, home prices are up on a national level due to limited inventory and strong buyer demand.

Now if you sell your home and go out and buy a comparable one, you may not walk away with much of a profit, if any. That's because what you'll gain from the sale of your home, you'll lose in the form of having to pay a premium for a replacement home.

But that likely won't hold true if you're downsizing. If you downsize, you might spend a lot less on a replacement home to begin with. And that could mean walking away with a nice pile of cash.

Imagine your home is worth $500,000 and you owe $300,000 on your mortgage. If you downsize to a $300,000 home, you might be able to take your $200,000 sale proceeds and put that money into your new home. The result? A $100,000 home loan, and much lower mortgage payments.

Also, property taxes are up across the board because home values are so high. Downsizing could mean slashing your property tax bill -- and keeping more of your hard-earned money for yourself.

Finally, if you downsize, you might shrink your utility bills and start spending less on maintenance. That could make your bills more manageable.

Should you downsize this year?

Downsizing could mean saving a fair amount of money on housing costs, but it could also mean compromising your quality of life. You'll need to weigh the upside against that very clear downside.

If your kids are older and they've recently moved out of your home, then downsizing may not result in a cramped lifestyle at all. But if you still have three young kids living at home, going from a four-bedroom house to a two-bedroom townhouse could be a huge adjustment for all of you -- one that you struggle with.

What’s more, there may not be smaller homes available to purchase in your neighborhood. And moving to another one could mean having to switch school districts -- something your children might have a hard time with.

Ultimately, there's much to be gained financially when you downsize, but you'll need to make sure it's a route worth taking. To be clear, if you can afford your housing expenses, there's nothing wrong with hanging onto your current home if doing so leads to a happier, more comfortable lifestyle.