A study by the Joint Center for Housing Studies at Harvard University shows that while moving has slowed among all age groups, it has slowed the most for seniors. Trade-downs in March 2010 represented 8% of all home sales. An alternative for some seniors may be keeping their home and applying for a reverse mortgage.

Is Downsizing or a Reverse Mortgage Better for Retirement?

For generations, a traditional tool for funding retirement has been downsizing: selling the family home for a profit, buying a smaller home and using the remainder for investments. The drop in housing values has reduced the popularity of this approach for some seniors, especially those disappointed at the prospect of smaller profits or unable to sell their home in a slow market.

A recent Wall Street Journal article analyzed this topic, finding several factors that make selling a home less appealing:

• Home prices have dropped substantially in some markets and homeowners who opted for cash-out refinancing during the boom years increased the size of their mortgage; both factors reduce available equity.
• Price gaps in many real estate markets have narrowed between the upper and middle range, so that smaller homes are no longer significantly cheaper--particularly in locations where seniors may want to live.
• Many seniors and people who have reached retirement age are still working, so they need to live close to their work.
• In some cases, adult children are returning to live with their parents because of financial difficulties, so seniors want to keep their larger home.

If the savings in monthly housing payments realized through a downsizing move are not substantial, many seniors opt to stay in their homes. Those that do choose to stay may want to evaluate reverse mortgage guidelines to see if this type of loan might be beneficial.

Available to seniors age 62 and older, a reverse mortgage can be used to pay off a current mortgage, generate a lump sum to pay off debt or to provide a monthly income or a line of credit to function as an emergency savings account. Seniors looking for an alternative to downsizing should gather information on reverse mortgages to see if this product can fit into their financial plans.

Michele Lerner

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance and business. Her clients include The Washington Times, Urban Land Magazine, NAREIT's Real Estate Portfolio, and numerous Realtor association publications. Michele's first book,

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