My mother-in-law is ready for a smaller place but will not go without her husband. How can we convince her to go?

See if there is someone outside of the family that the father trusts. Often people who aren't part of the family can convince them when family can't. Even a financial advisor, doctor or faith community leader - and old friend - these folks can sometimes have influence.
Carol

I strongly agree with Carol's suggestion. This is what worked in our case. For example, the only person who could convince my father he needed to stop driving was a respected brother-in-law ( who is a retired physician). My father has retained great respect for all of his old friends, friends who go way back. This is a terrific suggestion by Carol. You could talk to one of your mother-in-law's old friends and explain to her the situation. Often friends of friends can have an objective vewpoint; they only want the best for their elderly friend, so they may be able to support you in nudging your MIL toward a smaller place.