Downsizing for a new home will take some thought in this real estate market.  With prices have come down as much as they have interest rates at historically low levels, more buyers are taking the plunge and deciding it’s a good time to buy, even though it may be a while before the housing market sees any substantial improvement.

Home owners who make the decision to buy up in this type of real estate market can improve financially when you compare the two transactions. They may sell their current home for less than it would have sold for in 2006, but they will also pay less for the new larger home.

The real estate transaction may not be as advantageous if you're actually buying a less expensive home. You may find that you sell at a much larger reduction than you would have a few years ago without realizing as much of a reduction on the purchase of the smaller, less expensive house. You also might find that you are in competition with buyers who are first timers, investors or trade down buyers like yourself.

Another factor is that, in general, the price per square foot of smaller houses is more than the price per square foot of larger houses in the same area. So you might have to pay more than half the selling price of your house to buy a house that's less than half the size of your house. That is, if you're purchasing the new home in an equally expensive neighborhood.

Regardless of this disparity in prices, if housing prices in your area are falling, it would be better to sell now than wait for the market to turn. Your home might sell for even less then.

Here are some tips to use when downsizing:

There is more to consider than how much profit you might realize in making a move to a smaller home. The first step is to make a list of all the reasons why you are considering downsizing. Reasons like; the house is too big; it costs too much time and money to maintain; it's in an inconvenient location; or it's not close to family. Then make a list of all the reasons it would make sense to stay in your home. Weigh both side of the scenario.

The next step is to do a cost comparison to figure out how much it costs to own your present home, including property taxes, home maintenance, utility bills, mortgage payments, insurance premiums and homeowners association dues if there are any. Then consider how much it would cost to get your home into prime selling condition. And factor in the costs of sale. Quality of life is hard to quantify monetarily, but is a major factor in most moves.

Then, calculate the cost of buying and owning a smaller home. Make certain you consult with your tax adviser to find out about the tax consequences of making the move.

Downsizers who are considering an out-of-area move should consider renting before buying. It usually takes awhile to learn the neighborhoods and figure out which one is best for you. Even if you're not moving out of the area, it may make sense to rent for a while.

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