Downsizing Difficulties and How to Plan for Them

Long gone are the days of the multigenerational home in which you are born, grow up, raise a family, and remain through old age, all under the same roof. Instead, the trend for generations has been for young adults to move out of their parents’ house, eventually buy a starter home, often purchase a larger home after having children—and then, as they get older, downsize into something more modest, for reasons both financial and physical. 

Downsizing has recently become much more difficult, however, as economic conditions have affected incomes, housing stock, and interest rates. Increasingly, older folks are “stuck” in their larger homes. 

Since the 2008 housing crisis, most Americans have seen the value of their homes rise considerably. You’d think that would be good news for retirees wanting to sell their house, downsize, and set aside money. Unfortunately, that’s only part of the story.

More recently, general feelings of nervousness and economic uncertainty combined with higher inflation rates and rising interest rates are taking a large toll on the typical younger American family. These factors are delaying—and in some cases, preventing—young families from purchasing a larger family home.[i] This trend impacts the wishful downsizing retiree in two ways: in some areas, it is reducing the pool of buyers for their home; but, more significantly, in most areas it means a much smaller pool of available modest, single-level houses or condominiums to purchase.[ii]

There simply aren’t enough suitable housing options for older Americans to choose from. To make matters worse, for decades zoning regulations in many areas of the country have made it difficult for new construction to keep up with housing demand, creating an ever-growing disparity between housing supply and demand.[iii] The choice for many older Americans has become “stay put” or buy a much more expensive (but available) condo than they would have liked and forgo cash savings. 

This trend is even more stark in Berkshire County (MA), where many of our clients live, due to the relatively low number of condominiums and the relatively high cost of new construction. As reported by the Berkshire Realtors and Multiple Listing Service Inc., condominiums make up a mere ~6.8% of the housing stock (compared to 10-12% nationally and 20% in urban areas).[iv] As for new construction, it costs more to build in the Berkshires than to buy a comparable existing home,[v] eliminating that option for many older folks.

Given this landscape, we suggest that for some retirees, it may make sense to plan for the possibility of remaining in their current house. This plan usually involves, first, adjusting your personal budget to allocate more funds toward future home ownership tasks you may want to outsource down the road, like landscaping, house cleaning, or general maintenance that shouldn’t be deferred. 

Second, if your house does not already have a first-floor bedroom and bathroom, your planning should include renovation costs. Another option could be building an accessory dwelling unit, or ADU, on your property. An ADU can provide a modest rental income to help cover the costs of staying in your main house. Or you could downsize into your ADU and rent the larger house. An ADU can also enable a family member or caregiver to live on site, if need be, down the road. The good news is that from a zoning and regulatory perspective, it is becoming easier in many places, including Massachusetts, to build accessory dwelling units.

Of course, the cost of construction or renovation can easily exceed your annual required minimum distribution (RMD) and free cash in the bank. Planning therefore also requires you to figure out how to best finance such a project. It can be difficult for many retirees to get approved for a mortgage, as they no longer have income from a regular paycheck. Before prematurely emptying a retirement account, it is worth speaking to your financial advisor about your options and doing some research. Some banks will provide cash-out refinancing to retired applicants by relying, in part, on letters from financial advisors that their client’s portfolio is sufficient to support lending at a given level.

If economic and housing conditions revert to more normal conditions, none of the above planning and capital investment would prevent you from switching course and pursuing a more traditional downsizing. Nothing, except, of course, the normal dread of moving—something that’s a pain at any age. 

[i] https://www.urban.org/urban-wire/rethinking-homeownership-american-dream.

https://www.nytimes.com/2024/04/20/health/seniors-home-equity-mortgages.html

[ii] https://themortgagereports.com/119485/senior-housing-shortage-is-hurting-first-time-home-buyers

[iii] Reports from numerous sources show disparity between housing supply and demand and slowing of new construction. https://nationalmortgageprofessional.com/news/us-housing-shortage-hits-record-high-analysis; chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.realtor.com/marketing/wp-content/uploads/2025/04/2025-Housing-Supply-Gap-Report.pdf

[iv] https://berkshirerealtors.net/market-info/re-market-watch/

[v] https:// berkshirerealtors.net/wp-content/uploads/Q22025MarketWatch/