Trading Down, But Not Down and Out

When the young couple in their early 30s finally achieved their dream--the brand-new house with the oversized country kitchen, Jacuzzi tub and three-car garage--they felt like lords in their own manor.

But their triumph proved illusory. What soon became apparent was that they were living well above their means. Property taxes on the couple’s 2,500-square-foot house had risen more steeply than their incomes. They had already trimmed their expenses to the bone.

Obviously, if they didn’t act, it was only a matter of time before they lost the house to foreclosure.

Hence, just two years after their purchase, the couple made the reluctant decision to trade down and buy a 1,400-square-foot ranch-style house built in the 1960s. In doing so, they dropped from a four-bedroom place to one with three bedrooms. And they gave up many luxurious amenities, such as the spacious kitchen and Jacuzzi.

Yet, as it turned out, the trade-down didn’t prove as painful as the couple feared, recalled Judi Wieben, the Re / Max real estate agent who represented them.

“They’re feeling great now,” Wieben said. “They still have their own home, still live in the same area and still have the same friends. Besides the house, the only thing that’s different is their neighbors.”

The truth is that for Americans raised on the notion that upward mobility is emblematic of success, the idea of trading down to a smaller house seems “degrading,” Wieben said.

Or course, the size of a family’s home is one factor influencing their satisfaction with life. Still, making an involuntary step down doesn’t have to be either embarrassing or permanent, assuming it’s handled well, she said.

Why do some people find it necessary to trade down even before their children leave home? Why isn’t America’s robust economy making it possible for more people to protect the higher living standards they’ve achieved?

Marc Eisenson, an author and newsletter publisher who has spent more than two decades trying to spare people financial duress, thinks he has some answers. “This economy is not so hot for a lot of people,” he said. “Many are struggling. They’re up to their eyeballs in debt and their jobs are continuously on the line.”

Since many Americans have scarcely any savings--and carry a heavy credit-card debt burden--even the temporary loss of a job can tip the balance against them if they face a financial reversal, he said.

“These days you see a lot of people living above their means. Missing just one house payment can mean disaster for them,” said Wieben, the Re / Max agent.

Unfortunately, many homeowners wait too long to make the tough decision to trade down to a smaller house, said Patricia Lee, a broker-manager for the Better Homes & Gardens realty chain.

But waiting until the wolf is at the door is a poor way to handle the situation, Lee said. “It’s better to face up to your problem rather than to run from it.”

Here are four pointers for those who must trade down against their will.

No. 1: Act proactively rather than reactively to your financial crisis.

If you haven’t missed any mortgage payments on your dream house, yet know that day is not far off, now is the time to sell and buy a smaller home, Lee said.

“Go into foreclosure and there’s no way you’re going to buy another house,” she said.

If you provide a good explanation for your errant ways, many residential lenders will forgive you a few late payments on your credit cards or auto loans.

But Lee said most in the home-loan business are “unforgiving” of those who let their mortgages go into default, especially if the lender must foreclose on the property.

No. 2: Hold your head high as you trade down.

“The only thing you’re hurting is your ego,” Wieben said. “I don’t think your neighbors care anyway. And if they’re the kind of people who do, you don’t have time for them.”

The truth is that even a sudden financial reversal is no longer considered a sign of personal failure, given the topsy-turvy nature of present-day labor markets, Wieben said.

“Today, job stability is just crazy. You can work for a company for 10 to 15 years and then walk in one day and find your job has been eliminated,” she said.

In explaining your moving plans to associates, Wieben suggests you cast your statements in the affirmative. Make it clear that you chose to make the decision to move to smaller quarters for the best interests of your household.

No. 3: Don’t feel guilty about depriving your children of a princely estate.

Granted, many offspring, especially teenagers, vocalize disappointment at hearing that the family must trade down to a less spacious or prestigious home. But typically their sadness is short-lived, especially if they can stay in the same general area and if the teens in the family can still attend the same high school, Wieben said.

If you like the community, it’s ideal to scout out a smaller house in the same general area. That way your lifestyle and commuting patterns will not be disrupted. Also, buying a small house in a pricey neighborhood can be one of the fastest ways to gain appreciation, Wieben noted.

No. 4: Look for the positive elements in having a smaller house payment.

A smaller mortgage payment can often mean a less stressful lifestyle and more time spent with your loved ones, says Eisenson, publisher of the Pocket Change Investor ($12.95 a year, [914] 758-1400), a quarterly newsletter designed to help people live better without feeling deprived.

You may not be part of the so-called voluntary simplicity movement, but freeing yourself temporarily from extraordinary financial pressure could have a calming effect. “Remember, you can always work your way back up to that big house,” Eisenson said.

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Distributed by Universal Press Syndicate.