Battling Broke: Montana homeowners face tough decisions when downsizing or upgrading

BOZEMAN, Mont. – Many homeowners in Bozeman are finding themselves in a challenging situation when it comes to upgrading or downsizing their homes due to rising costs.  

Matt Ryan, a real estate advisor for Bozeman Real Estate Group, discussed the issue of homeowners feeling trapped by what he calls the "golden handcuffs."  There tends to be a lot of confusion for move-up and downsize buyers, he said. 

"They don't know where to start. And they don't necessarily know what questions to ask. Or they have their questions, but do they actually apply?” Ryan said. 

Those looking to upgrade are often hindered by their current low mortgage rates. 

"You go from a $2,500 month or $3,000 month payment to $8,000. And so, you got all that stuff kind of getting put on hold, and it's created a lot of frustration for people." 

For those considering downsizing, the increase in home value brings concerns about capital gains taxes. 

"You have a lot of the older generation staying in the house. It's much larger than they need because they don't want to pay the tax bill," Ryan said. 

Homeowners with good equity whose homes appreciated in value also may not be able to buy the house they want with how home prices around them have surged.  

There are some ways to alleviate the capital gains tax situation. According to the IRS, if you have a capital gains tax from the sale of your main home, you may qualify to exclude up to $250,000 from your income, or up to $500,000 if you file a joint tax return with your spouse. 

Jason Delmue, a member of the city's community development board, shared his perspective on the rising housing costs. When he moved to Bozeman in 2001, purchasing a home was easier than it is now, he said. 

"In terms of like what you need to save for deposit and what your monthly mortgage payments would be. You know, it's more than double. So, it's super unaffordable compared to what it was then," he said. 

So, what can homeowners who are interested in upgrading or downsizing do? 

Ryan emphasized the importance of connecting with a lender as soon as homeowners start considering this question. 

"A good lender will sit there and work with you for that year and tweak your finances and kind of play their game of how to get your finances in the right situation to be able to make that move and solve that problem," he said. 

This will give you time to prepare your current home for the market and set achievable goals for buying your next home. Unfortunately, some owners may have to be prepared to bite the bullet and give up their current low interest rates to make an upgrade possible. 

Housing stock is slowly starting to increase in Bozeman, especially for rentals. Ultimately, that will be the surest way prices will start to cool, Ryan said. 

"With increased inventory and time, market homes are now sitting 60, 70, 80 days versus four hours. And so, it allows, at least allows buyers to make a better decision," he said.