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For many years now, home-owning Americans had more equity in their homes than they did in their retirement accounts.  In order to afford their retirements, they would have to find a way to unlock that equity, either by selling their homes and renting or moving in with family, or by downsizing to a cheaper home and netting the difference in the sale and purchase prices.  Even for home-owning Americans with healthy retirement accounts, unlocking home equity by downsizing is a common strategy to increase retirement assets.  Unfortunately, with so many baby boomers selling bigger and buying smaller at the same time, the forces of supply and demand have awakened to reduce the amount gained from selling a bigger home and buying a smaller home.  Additionally, a low supply of cheaper homes in most metropolitan areas, competing with younger people looking at the same size houses as their starter homes, and the potential for rising mortgage rates all add up to the potential for retirees to not be able to count on supplementing their retirement savings with as much home equity as they thought.

We are beginning to read more and more stories along this line, and as more Baby Boomers retire and put their larger homes on the market with an eye toward smaller homes, this trend is only going to pick up speed.  The more large homes there are on the market, the lower those homes have to be priced to move.  Likewise, the higher the demand for smaller homes, the higher their prices will move.  Retirees will be getting pinched in both directions on that swap.  There are ways around this, including moving to lower populated areas, but those moves come with their own trade-offs.  With real estate forces being a localized phenomenon, it very much depends on where a seller is selling and where a buyer is buying, but in general, retirees may not be able to count on unlocking as much home equity to supplement their savings when it comes time for them to make the swap.