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Downsizing in a Strong Real Estate Market

Downsizing in a Strong Real Estate Market

 

Are you an “empty nester” who needs a home for the future?  Is it time to downsize or to move into another home more suitable to your retirement lifestyle or soon to come retirement lifestyle?

Canada’s population is aging; it’s a fact, plain and simple.  The latest statistics show that a greater than ever portion of the Canadian population is made up of people over 50.  There are a number of reasons why this “greying phenomenon” is taking place, but the key factors include the fact that people are living longer.  Perhaps the most significant reason is that the people who made up the population surge of the baby boomer generation are now reaching middle age.

 

Empty Nesters Downsizing in a Strong Real Estate Market

Empty Nesters Downsizing in a Strong Real Estate Market

This shift of demographics is having an impact on several economic fronts, not the least of which is the real estate market.

As more people become “empty nesters” or prepare for early retirement, you can expect to see an increased interest in the downsizing market.  This time around, however, it will be downsizing with a difference.  The “empty nesters” we will see moving into the future will be a completely different kind of home buyer that in years past.  Middle-aged people starting the transition into retirement used to be focused on two financial goals when down sizing.  They wanted to reduce their living expenses to conform to a significantly reduced retirement income and also free up some of the capital tied up in their home’s equity to generate additional income for living expenses.  While these tow goals are still part of the plan for many downsizing home buyers, there is an increasing number that are not making the move for primarily financial reasons.

 

 

Over 9 million baby boomers have either inherited or are poised to inherit their parents’ wealth.  This represents a transfer of asset wealth of billions of dollars that has been unprecedented in human history.  It means that for many, the choice to downsize is a decision being made for lifestyle, rather than for monetary reasons.  It also means that what were once general assumptions about the downsizing market will no longer be strictly held true.

 

When downsizing also means downgrading–selling one home to buy a smaller one of significantly lesser value–homeowners are highly motivated to list their home in today’s strong market.  They can expect to realize a good selling price for their existing home, as well as capitalize on a relatively large surplus of cash after a smaller home is bought from the proceeds.  However, a declining market is not good news for those who want to downsize to free up capital.  In this situation, a declining market will typically result in a corresponding decrease in the surplus capital generated from the transaction.  For example, if the home selling and buying prices are reduced by say, 10% due to the falling market, a cash surplus of $100,000 will also reduce to only net the homeowner $90,000.  If you’re planning on downsizing, a strong market is the most advantageous time to make your move.

 

 

However, the demographics also show that a new kind of downsizing homeowner is emerging.  These fortunate individuals want to downsize for the freedom and flexibility it affords their lifestyle, rather than as a financial necessity.  These people are often looking to downsize, but also to upgrade their home, looking for high demand locations and premium features.  In situations where generating a cash surplus may be a minor consideration, virtually any market can present a good time to make your move.

 

If you find yourself in this lifestyle transformation, you’re in cast and good company.  And what that means is that there are many wonderful opportunities for you to create this new chapter in your life–if you know what it takes to get the most out of the equity you’ve built up in your current home.

 

By: Bill Pinto from the CIR Aboutowne Realty Corp. CIR colleague of Glen Godlonton

 

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