Downsizing from a larger to a smaller home is a common practice for older adults as they enter retirement, but those types of plans could now be challenged by issues stemming from inflation. In addition, seniors are no longer the only ones who are willing to consider downsizing, which could cause more issues in a competitive market.
The Plan Collection, a vendor of home architectural plans, recently released data that shows the demand for new home plans with smaller square footage increased in 2022. There are likely multiple factors driving this trend, including inflation, building costs and mortgage rates, all of which have increased year over year.
“Year over year, searches for house plans for homes ranging between 500–1,000 square feet are up 34%, and those 1,000–1,500 square feet gained 32%,” the Plan Collection said in a press release.
This aligns with recent data published by Bank of America that showed about 71% of prospective buyers are now willing to purchase a smaller home than they might have been before. This could cause the market to be more competitive for seniors who have downsizing goals in mind.
A “60 Minutes” news report, which aired in March 2022, offered insight into why younger homebuyers might be looking at smaller homes. Redfin Chief Economist Daryl Fairweather told “60 Minutes” that one major issue that is keeping millennials from buying homes is a lack of housing supply.
“We are not building enough housing for everybody who needs a place to live,” Fairweather said. “We built fewer homes in the 2010s than in any decade going back to the 1960s, and at the same time millennials are the biggest generation and they’re entering into home-buying age.”
Downsizing is often included in seniors’ retirement plans to account for family members leaving the home, the difficulties maintaining a larger home or mobility issues.
While reverse mortgage loans are typically reserved for seniors who remain within their residences, a smaller share of business is done through the Home Equity Conversion Mortgage (HECM) for Purchase (H4P) program, which allows an older borrower to purchase a new home with a reverse mortgage.
H4P has its defenders in the reverse mortgage industry, but recent data from the Federal Housing Administration (FHA)’s Annual Report to Congress detailed that H4P utilization was reduced, making up only 3.2% of all HECMs in FY 2022 from its 4.17% total in FY 2021.