The idea of everyone moving up the housing ladder is pretty well established in the housing market. The housing ladder normally means that homeowners move up to a bigger (and more expensive) property each time they move. But some recent research suggests that downsizing could be a growing trend in the property market. So let’s look at what it is and what more downsizing could mean for buyers, sellers and agents.
What exactly is downsizing? Why is it increasing?
Downsizing can be defined in several ways. It could mean that a homeowner is looking to buy a property that is physically smaller than the one they are selling. But it may also (and probably more likely) means that they are looking to buy a property that is cheaper than the one they are selling.
According to this report analysis of user activity on Reallymoving.com has found the proportion of downsizers rose by 41% between January and December 2022.
Reallymoving.com say that so-called ‘value downsizers’ who are moving to a cheaper property than the one they’re selling currently account for 43% of all home moves. This is up from 24% a year ago and now at the highest level since 2015. When defined as those moving to a home with fewer bedrooms than the one they’re selling downsizers comprised 17% of all home movers in January 2022, rising steadily throughout the year to account for 24% of all home moves by December. This was based on data from around 55,000 conveyancing registrations.
Reallymoving.com suggest that downsizing is being driven by the cost of living crisis, and particularly energy costs, which are prompting people to reconsider how much space they need and what they can afford.
Interestingly, this trend appears to be in direct contrast to what happened as a result of the Covid pandemic. Just a couple of years ago the main trend in the market seemed to be for people to move to larger (and so more expensive) homes with more space.
It’s fair to assume that financial reasons are the predominant reason for any increase in downsizing. But it’s important to realise that people at the top of the property ladder have been downsizing for some time. Older people may want to move out of a large family home and into a 1-2 bed property, and perhaps even a purpose-built retirement property.
So what could all this mean for the property market?
* Smaller homes could be more in demand over the next few years than they have been in the past. Larger homes could be in less demand.
* It could raise the values of smaller homes due to demand exceeding supply …. or at least lead to them holding their value better if the general level of house prices falls. It could help to push the values of larger houses down.
* It could encourage new build developers to build more smaller homes and fewer larger homes. (In recent years a high proportion of new builds have been larger, family sized homes.)
* It could make smaller properties easier to sell. And it could make larger properties harder to sell, or even impossible to sell in some cases. (Go back a few decades and large homes were very hard to sell, with many being converted into flats or into commercial properties.)
It could mean that retirement properties, which are often hard to sell on the resale market, become easier to sell.
* It is likely that it won’t just be the size of the property that will be part of the buying decision. Running costs, and especially energy costs, will become more relevant. Buyers will be more interested in cheap to run properties, and less interested in those with higher running costs. And they may look to get accurate information about running costs before putting an offer in.
* Downsizers are more likely to be cash buyers. They are more likely to be buying with equity released from a more expensive home. There could be fewer properties bought with mortgages, and so fewer mortgages to sell for lenders and mortgage brokers.
* Some downsizers could have financial problems. They could have difficulty in raising the finance, or even be in negative equity, which could hinder or even derail the sale.
* Downsizing could actually help keep the housing market moving during recession. Right now, fewer people are likely to buy a bigger and more expensive house by choice. So downsizing could be a valuable source of extra listings and sales.
At the time of writing it’s difficult to say whether downsizing is likely to be a short or a long term trend. Whether it is only likely to last during tricky times for the economy, or whether it is likely to be a more permanent feature of the market. However, a market where more buyers are effectively moving down the housing ladder rather than up it is certainly something all agents, as well as buyers and sellers, should bear in mind.