By Vishesh Raisinghani

Downsizing is often considered a financial slam dunk. On paper, it seems like a savvy move to sell a large home, unlock all that equity and move into a smaller house or condo to save on property taxes and maintenance costs.

Since many older Americans are empty-nesters by the time they retire, all that space is often unnecessary anyway.

However, the data suggests that this “savvy” move isn’t so popular. Roughly 61% of boomers said they do not plan to sell their homes, according to a 2025 survey by Clever Real Estate (1).

So why are so many older Americans and retirees avoiding this seemingly clever maneuver? Digging deeper into the numbers shows that, for many people, letting go of their homes simply doesn’t make financial sense.

Here’s a closer look at why.

The hidden costs of downsizing

On the surface, downsizing seems like a simple math problem. Take the fair market value of a large four-bedroom detached house and subtract the market value of a smaller, two-bedroom apartment and the difference is your ticket to financial freedom.

However, this simple calculation overlooks many of the hidden costs of buying and selling homes. Agent commissions, closing costs, taxes, home repairs, mortgage repayment and other additional costs can all add up to 10% to 15% of your home’s final selling price, according to Experian (2).

It can also cost as much as $10,000 if you’re moving long-distance, such as from the East Coast to the West Coast, according to Rocket Mortgage (3).

Beyond these transaction costs, there’s also capital gains taxes to consider. The Internal Revenue Service (IRS) exempts up to $500,000 in capital gains for a married couple filing taxes together (4). But if you’ve owned your home for a few decades in a relatively high-cost-of-living region, there’s a chance your gains exceed this threshold.

For many millionaire homeowners, this tax is an additional barrier to downsizing.

For others, the mortgage rate is a key concern. “For the boomers who do have a mortgage, nearly all have a much lower interest rate than they would if they sold and bought a different home with today’s near-7% rates: even if they downsized, they may have a nearly identical monthly payment,” says a Redfin report (5).

The aforementioned report was published in 2024, but the average 30-year mortgage is nearly 6% today which is still too high to incentivize a move (6).

Simply put, there are many common scenarios where downsizing doesn’t make financial sense. The costs and taxes can diminish the appeal of moving to a smaller home, let alone the lifestyle challenge of adapting to a smaller space.

That being said, downsizing isn’t always a bad idea.

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When downsizing makes sense

There are specific circumstances where downsizing is clearly the right financial and lifestyle decision.

The calculus starts to favor a move when the gap in shelter costs is genuinely substantial — for example, moving from a high property-tax suburb to a lower-tax area with lower carrying costs, where the annual savings run into the tens of thousands. In those cases, the transaction costs can be paid back relatively quickly.

The tax impact also becomes a net positive when your gain falls under the exclusion threshold and you move from an expensive market to a dramatically cheaper one, allowing you to invest a meaningful lump sum that could generate additional retirement income.

Finally, proximity to family is perhaps the most legitimate non-financial factor. If your children and grandchildren are far away and your health is trending in a direction that makes independence uncertain, no spreadsheet should keep you rooted to a specific location.

Bottom line: downsizing isn’t a slam dunk, but a closer look at your personal situation could help you make the right decision.

Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Clever Real Estate (1); Experian (2); IRS (3); Rocket Mortgage (4); Federal Reserve Bank of St. Louis (5)

Source: Moneywise