For decades, downsizing was both a practical and financial rite of passage for retirees and empty nesters. Sell the big family home, buy something smaller, pocket the difference, and simplify the next chapter.
But in today’s housing market, that math is working against retirees and threatening the future of generational wealth.
With the cost of a modest starter home pushing $1 million in more than half the country, even a modest replacement home can cost enough to wipe out much of the equity retirees had hoped to preserve for themselves, or eventually pass on to their children.
At the same time, those adult children are facing a housing market where family help can make the difference between buying a home and being locked out. That’s turned what used to be a straightforward lifestyle decision into a much more complicated family-finance calculation.
“This is no longer just a lifestyle question. It turns into an affordability question, turns into a wealth transfer question,” says Evan Mills, associate financial adviser at Scholar Advising.
So instead of shrinking their footprint and holding on to home equity for later, some retirees are buying bigger with their adult children. But Mills warns that upsizing isn’t all upside. A bigger house often comes with higher operating expenses, higher property taxes, and a bigger burden for homeowners.
“Right now it’s not choosing between two great options,” he says. “It’s more like deciding which heavy door you actually want to push on, not which one is going to open for you.”
Why the old downsizing payoff is shrinking
Older homeowners are sitting on the kind of housing wealth their adult children are struggling to build. But two market forces are making the hand-off between generations harder: higher mortgage rates and the capital gains tax exposure facing some longtime homeowners.
“It used to be a relatively straightforward process to go through retirement and downsize,” says Cody Schuiteboer, president and CEO of Best Interest Financial. “You would just pocket the difference. This is no longer the case.”
For homeowners who still have a mortgage, selling can mean giving up a lower interest rate and buying again at today’s higher rates.
Just over half of outstanding mortgages (50.6%) still carry rates of 4% or lower, and roughly 78% have a rate below 6%, according to the most recent analysis from Realtor.com® of FHFA National Mortgage Database numbers. And a 2024 Federal Reserve paper found that mortgage-rate lock-in explained 44% of the drop in mortgage-borrower mobility from 2021 to 2022.
Then there’s the tax bill. Homeowners can exclude up to $250,000 in capital gains from the sale of a primary residence, or up to $500,000 for married couples filing jointly, if they meet IRS requirements. But those thresholds have not changed since 1997, even as home prices have climbed sharply.
In a recent analysis from the National Association of Realtors®, 13.1 million homeowner households—roughly 15% of all owner-occupied households—already have unrealized gains above the capital gains exclusion available to them.
For retirees, that can turn appreciation into a strange kind of penalty. The same home price growth that created family wealth can also make it more expensive to unlock. And once selling, buying, moving, and taxes are factored in, the downsizing payoff can be much smaller than expected.
“We always underestimate what a move costs,” says Ashley Harris, director of homebuyer education at Neighbors Bank. “Closing costs, moving expenses, and the cost of getting a new place ready to live adds up.”
To her point, a recent study from Realtor.com found that the average cost of a move was a whopping $17,000.
How home equity has become a lifeline for adult children
Many of those same forces making it harder for retirees to unlock home equity are also making that equity more valuable to their adult children.
Younger buyers are facing high home prices, elevated mortgage rates, student debt, and years of high rent—all of which can make it harder to save for a down payment or qualify for the home they need.
As a result, an estimated 1.8 million potential Gen Z and millennial households were missing from the housing market in 2025 alone, according to a recent analysis from the Realtor.com economic research team.
But a multigenerational purchase can change the equation on both sides.
“A retiree brings equity and the adult children bring income, which can be a stronger profile,” says Harris.
So, one generation contributes accumulated housing wealth and the other contributes current income. Together, they may be able to buy a home that neither side would choose or qualify for as easily on their own.
It can be a workaround for today’s affordability crunch, but it also changes the timing of inheritance—and that could be the biggest benefit.
“The inheritance their kids actually need is help buying a home now, not money 20 years from now when the kid is 55 and already done struggling,” says Levi Rodgers, a real estate broker and CEO of LRG Realty in San Antonio, TX.
To his point, further research from Realtor.com has found that buying a first home by age 30 results in a 22.5%, or $119,000, higher net worth by age 50 than waiting just 10 more years to buy.
Mills puts it this way: “The wealth transfers while the younger generation needs it most.”
The risks of turning retirement wealth into shared family housing
Still, buying bigger is not automatically better. While a multigenerational home can reduce the cost of running two separate households, it can also create shared liabilities.
“A bigger house means higher property taxes, higher insurance, higher utilities, and more maintenance,” explains Harris.
But the biggest risk, experts say, is leaving too much up for interpretation.
“The multigen home fails on the paperwork, not the mortgage. Title, contributions, and exit terms are required in writing before the first box is packed,” says Schuiteboer.
In many ways, this reflects the new role multigenerational living is playing. Yes, it’s a reaction to high prices. But it is also a form of early inheritance—and inheritances need to be protected.
That means families have to be clear about how the home will actually work while everyone is living there: who pays the mortgage, who covers utilities, who handles the surprise repair bill. Families also need to think through the harder questions before they become urgent, including what happens if someone wants out, needs care, gets divorced, loses a job, or dies—and how the home will be treated when ownership eventually passes to the next generation.
“If you’re looking at a multigenerational home and you think it’s automatically going to help both generations, you’re looking at it the wrong way,” Mills says.
Instead, that benefit can be shared only when the family plans for the risks as carefully as it plans for the purchase—and that may be the best test of whether it’s the best option for your family.
As Schuiteboer puts it: “Whether [upsizing] beats downsizing hinges on one question I always pose: Can this family live together and have the ownership terms been established in writing?”
