Downsizing? Why Rising Interest Rates Are Your Friend
Mortgage rates above 7% have put the housing market on ice as affordability challenges put off a lot of buyers. Newer, younger homeowners who locked in their mortgage at a low interest rate — and whose next move probably would be trading up — are content to stay where they are until mortgage rates fall.
But there's one group of homeowners for whom high interest rates are arguably good news as they contemplate their next housing market transaction: downsizing members of the baby boom generation. For them, housing and financial market conditions are more attractive than a year ago.
Consider a homeowner in their 60s who has recently retired or is planning to retire soon, and who is contemplating a move. That housing-market transaction might be selling a four- to five-bedroom house for something smaller and more manageable, or moving from a high-cost state like New York or California to a lower-cost state like Florida or Arizona (or both). Their new house will be cheaper than their current house, meaning they'll get cash out of this transaction — potentially hundreds of thousands of dollars.
That's in part because of how older homeowners differ from younger homeowners. While the average home price in the US is around $400,000, it stands to reason that older homeowners have on average more valuable homes than younger homeowners who only recently bought into the market. And older homeowners in many cases benefit from decades of home-price appreciation. They're also more likely to have paid off their home in full, or have mortgages that are relatively small compared with the level of equity in their homes.