Downsizing absent a financial emergency sounds like giving up. It’s not for me. Raising your income to make up the difference would be easier than sending to your kids to an apartment. Are the school systems comparable? You don’t want to be moving to a bad school system too.
Of course I’ve publicly stated my goal is to buy a house bigger than my parents. I might buy a smaller house now to save as a strategic move to better afford the bigger house next time.
Is your spouse excited about downsizing or are you pushing it? You both need to be on the same page. Don’t be cheap with the house. It’s where you live. If everyone doesn’t have the space they need it becomes claustrophobic real fast.
My wife actually has been trying to convince me to downsize for a while. A few additional comments about our thinking. There is currently a shortage of housing in our area, which has caused sale prices to be well over the value of the house. Most houses are also selling about asking price usually within a few weeks. There is currently 200 new single family houses that will start building in next 90 days. Our thinking is there will be a large amount of houses hit the market due to many deciding to upgrade to the new houses. We also hope this will bring prices down when we start to look to buy.
We spend a lot of time outside our house having two very active kids. Most weekends we are only home for a few hours a day. While we know living in an apartment is not a long term plan, we believe it makes sense. In addition it will allow us to become completely debt free which brings a lot of relief.
Downsizing is not "giving up" and you aren't doing anything wrong by "sending your kids to an apartment". It's not prison.
I literally just sold my 3 story townhouse and downsized to a one bedroom apartment, and no, it wasn't a financial emergency, I could easily afford a home twice the size of my old townhouse.
I bought an apartment because I prefer it, because I've wanted one since I was a kid and visited family in a major city who lived in a cool high-rise apartment with an indoor pool and a great view from the balcony.
Just because other people have "bigger is better" values doesn't mean you have to.
I'm currently sitting in a big luxury home that a very wealthy friend just bought exactly when I bought my apartment. It's beautiful and the wine cellar is a nice feature, but I would never ever ever ever choose to switch houses even if I could do so at the same cost.
Different people have different tastes and different priorities.
I prefer my concrete sky box.
Now, that said, you say that you know living in an apartment is not a long term plan, so that doesn't sound like you want to live in an apartment. What do you want?
If what you want long term is the kind of house you have now, then I would just stay put if you can readily afford it. Seriously. Having just bought and sold, that shit is so ridiculously expensive, your market would have to drop just for you to break even on the costs of selling, moving, buying, and moving again.
Major housing development doesn't typically drop prices, it can cool or slow a market, but it can also just help it chug right along.
Think about it, do you really think that a new housing development will have so enormous a negative impact on the market that someone who buys this year will end up underwater on their mortgage next year?
Houses don't tend to frequently/predictably lose a lot of value, and you're proposing that all of the houses in your area will substantially drop in value just because someone builds 200 units?? Does that actually sound like something that you could easily predict???
If your goal is to hop in and out of real estate in some houseing-market-timing scheme, then I seriously doubt that you will come out ahead, and may price yourself out of your own market and lose your opportunity to affordably own the home you want/already have.
If your goal is to save money by living smaller with your family and really embracing a more minimalist and frugal lifestyle while enjoying all of the benefits of apartment living, then that's a different matter altogether.
Whether this move is brilliant or insane really depends on what you want from it.
