How Much You Can Save by Downsizing in These Cities

For empty-nesters and other homeowners who are considering downsizing, a move to a smaller place could add quite a bit to your next egg, depending on where you live.

Dec 3, 2022 - 22:30

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How Much You Can Save by Downsizing in These Cities

For empty-nesters and other homeowners who are considering downsizing, a move to a smaller place could add quite a bit to your next egg, depending on where you live.

Anyone who has owned their home for more than a few years has likely built some equity. But boomers, or anyone who purchased their homes 20, 30, or 40 years ago, are sitting on a gold mine.

U.S. homeowners are sitting on an unprecedented $8.1 trillion in home equity, Money.com reported last year, and the boomer generation, many of whom have lived in their homes for decades--and in some cases paid off their mortgage--is especially well-positioned to gain from their home equity.

The price of real estate in the U.S., though it has its ups and downs, has risen overall since the 1970s, when the median sales price was about $24,000, according to the St. Louis Federal Reserve. Over the ensuing decades, the median sales price in the U.S. was:

in 1980: $64,000
in 1990: about $120,000
in 2000: about $172,000

The peak median sales price of 2007 was $257,400 and the low of 2009 was $208,400.

Since then, the median sales price has risen to $454,900 in the third quarter of 2022.

For empty-nesters and other homeowners who are considering downsizing, the number crunchers at StorageCafe, an online platform that provides storage-unit listings across the nation, roughed out how much cash you can get your hands on if you move from a 4-bedroom home to a cheaper 2-bedroom home.

The big winners are in some of the most expensive markets like San Jose, Calif. and San Francisco. In San Jose, the median value of a 4-bedroom home, according to Zillow (Z) - Get Free Report, is $1.9 million, while a 2-bedroom is $1 million. A homeowner could theoretically downsize to that smaller home and clear $777,426, accounting for closing costs and property taxes, according to StorageCafe's research.

That’s a decent chunk of change to add to your nest egg.

To find the cities where homeowners could save the most from downsizing from a 4-bedroom to a 2-bedroom, StorageCafe looked at the country’s 100 largest metropolitan areas by population and ranked them by the amount of savings. They used Zillow’s Home Value Index for prices, and factored in closing costs and property taxes.

Median taxes for 4-bedroom homes were calculated by multiplying the median taxes across all properties by the ratio of 4-bedroom home values to all home values, and the same was done for 2-bedroom homes.

Closing costs were calculated as 8% of the average home value for a 4-bedroom home (selling costs) and 3% of the average home value for a 2-bedroom home (buying costs).

Downsizing savings represent the home value difference between a 4-bedroom home and a 2-bedroom home plus tax savings per 10 years, minus the closing costs.

The savings is based on a cash transaction, the numbers do not account for a mortgage, which could change your savings depending on your current rate.

Here are the cities where downsizers could save the most.