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Downsizing your home? Prepare yourself

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  • Downsizing your home? Prepare yourself

    Downsizing your home? Prepare yourself
    By Karina Barrymore
    From: News Limited newspapers
    August 31, 2010 8:29AM

    Families or empty-nesters looking to move to a smaller home may be in for a shock / File Source: Supplied
    • Job losses, family splits behind downsizing
    • Increased demand pushing up prices
    • Property investing now "a Ponzi scheme"

    DOWNSIZING to smaller homes is adding even greater pressure to property prices as empty-nesters and households under financial stress compete with younger families and investors for homes in the popular middle-price ranges. Job losses, family separations, the global financial crisis and lifestyle changes are some of the reasons for downsizing.
    However, increasing demand from these buyers is pushing up prices, wiping out much of the expected savings.
    Empty-nesters and retirees, in particular, are often now faced with little or no extra cash left over after selling the family home and downsizing.
    Investors are finding yields and rental income cannot justify the purchase prices, while families trying to downsize to cut their debt are also being squeezed.
    Lachlan Partners property adviser Ana Bennett says the strategy of freeing up equity from larger homes and downsizing does not always pay off.
    "One problem with downsizing is that, while prices may have risen such that it is tempting to sell and unlock money, the prices for the kinds of properties you might want to downsize to have also risen," Bennett says.
    Squeeze on housing
    "In theory, it is a good idea but it only works if the new property gives the downsizers both the kind of swap in lifestyle and finances they are looking for," Bennett says.
    Morgan Stanley chief economist Gerard Minack, who recently forecast Australian property to be 40 per cent overvalued, says the price pressure is also bad for investors.
    The number of loss-making landlords has increased dramatically during the past 10 years, with 70 per cent of landlords now making a loss, compared with only 50 per cent in 1998, he says.
    Property investing has become a "Ponzi" scheme, where people are increasingly hoping for future capital gains to make the investment worthwhile, Minack says.
    Finance broker Loan Market's chief operating officer Dean Rushton says there are more households downsizing for financial reasons or to help out their adult children.
    Although most downsizers are empty-nesters or people close to retirement, other families and households are also buying smaller homes to reduce their debt.
    "By selling up and buying a smaller and less expensive property, they can reduce their mortgage and create a comfort zone," Rushton says.
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    Interesting and it supports my intuition that owning retirement type properties is a sector worth investing in. People get sick of mowing lawns, tending large gardens, constantly seeing peeling paint, vacuuming empty rooms.