Why downsizing will cost homeowners MORE: Soaring house prices and elevated mortgage rates mean retirees can no longer afford to move

Downsizing has traditionally made sense for retirees looking to settle down and build their nest eggs for their later years.

But moving to a smaller home may no longer be a way for Americans to save money in the current market, experts warn.

The average 30-year fixed-rate mortgage has risen to 7.49 percent, according to the latest data from lender Freddie Mac, while many homeowners are locked into much cheaper 2 or 3 percent deals on their current homes.

Meanwhile, the number of smaller homes for sale has declined in recent years, according to the listing’s website Realtor.com – pushing up the price of the limited stock on the market.

The number of properties for sale measuring 750 to 1,750 square feet — the size range that downsizers tend to buy — has dropped more than 50 percent since 2016, according to Realtor.com.

The number of smaller homes for sale has declined in recent years, according to listing website Realtor.com

It found that while there were 548,659 active listings for homes in this size range in September 2016, there were just 266,802 in September this year – down 51 per cent.

The steepest drop has come since the pandemic. In September 2019, there were 407,960 listings between 750 and 1,750 square feet, Realtor.com said, which is now down 41 percent.

The price of these houses has also increased. While the median listing price in September 2019 was $199,250, it rose to $299,908 last month.

Hannah Jones, Senior Economic Research Analyst at Realtor.com, said: ‘Home prices for smaller homes fell 0.4 percent year-over-year in September, but remained more than 50 percent higher than pre-pandemic levels.

“Coupled with mortgage rates of more than 7 per cent, this price growth means that the typical housing payment is more than double the September 2019 amount.”

The average 30-year fixed-rate mortgage rose to 7.49 percent, according to latest data from lender Freddie Mac

Moving to a smaller home may no longer be a way for Americans to save money in the current market, experts warn

Downsizing is most expensive for those stuck in historically low mortgage rates — and who need to take out a loan on a smaller home.

If they were to move, a smaller home could translate into larger monthly house payments, which would significantly stretch the budget of retirees on a fixed income.

But not all homeowners who downsize will take out a mortgage on their next home.

Home insurance and maintenance costs are also on the rise, hitting even those who can downsize and buy cash.

According to Bankrate, the average coverage on a $250,000 home with 20 percent from 2022 to $1,428 a year.

Homeowners in natural disaster-prone areas like Florida must pay an even higher rate — with some people being charged up to $6,000 a year for coverage.

Despite these higher costs, just over a quarter of sellers traded for a smaller home in the past year, according to a 2023 report from the National Association of Realtors.

Those who downsized the most were Americans ages 77 to 97, downsizing by an average of 220 square feet, the research found.