We just did this in August and so far have no regrets. We have two girls ages 7 and 9. We from 2700sf with 4 bedrooms and 3 bathrooms to 1500 sf feet with 3 bedrooms two bathrooms. The house we bought has a bonus room we are finishing out right now that will add another 300 or 400 sf. We thought long and hard before making the move, but the house we lived in was very expensive to maintain and wasted a ton of space. We really examined what we needed and waited until we found the right house with the right school zoning in the right price range. It took two years to find the right property, but we are really happy with the move and we ditched over 100K in mortgage debt, HOA fees, higher property taxes, and much higher maintenance costs.
We were worried about how our girls would respond, but they love the new house because the bedrooms are closer together (they hated being upstairs while we were downstairs) and they now have a huge yard to play in. They don't seem to miss the old house at all.
We knew we would be losing a lot of space, but we really examined what we needed and what we didn't. Things that were musts for us was a big pantry, a laundry room (not a laundry closet), decent storage space, a garage, and at least three bedrooms and two bathrooms(with one being in the master bedroom). Many older ranch homes don't have these features, but this house had them all. Even though this house is smaller, it is very well designed and doesn't really waste any space. It amazes that we were able to downsize so much, but we haven't actually felt the pinch. It actually has felt really good to get rid of things we don't need and to simplify our lives.
I really worried that we would have a lot of regrets especially while we are in the process of "fixing up" the fixer upper, but we haven't so far. I actually love that I am getting to be creative and use my DIY skills which is something I never did in the old house.