According to data released by NIC (National Investment Center) last week, senior living occupancies ticked up in the first quarter. This is a trend that has continued since the pandemic occupancy “crash”. Other economic data, however, suggest that challenges remain for continued growth, especially within the CCRC/Life Plan sector. The NIC data is here: 2Q24-NIC-MAP-Market-Fundamentals
Per NIC’s report;
- Occupancy for senior housing increased to 85.9%, a 50-basis point rise from the first quarter of 2024.
- Independent living occupancy grew to 87.6%, an increase of 70 basis points.
- Assisted Living and Nursing care both moved up to 84.3% representing a 50-basis point gain for Assisted and a 30-basis point gain for Nursing care.
The increase in independent living occupancy marks a shift from previous quarters, where assisted living saw more growth. Currently, assisted living occupancy is at 84.3%, just 0.1 percentage points below its pre-pandemic peak of 84.4%. In contrast, independent living occupancy stands at 87.6%, which is 2 percentage points shy of its pre-pandemic peak.
The gains in occupancy are a function of strong demand and depressed new inventory. With the lack of new unit development, existing operators have benefitted by strong demographic trends that produce (due to aging and disability), continued demand for senior living/senior housing products. That demand created a 4.4% increase in occupied units compared to the second quarter one year ago. Inventory growth as noted, was slow, growing at 1.5% year over year.
Challenges Remain
Though senior housing and senior living have enjoyed a steady occupancy rebound, challenges to a fuller, healthy recovery remain. First, the overall economic picture is rather bleak. Labor remains a challenge, and, in many cases, occupancy growth is tied to staff availability. This is particularly true in nursing care where consistently, gains in census are hampered by an inability to staff in sufficient numbers and with sufficient expertise.
Interest rates are at decade highs with home mortgage rates hovering near 7% for a 30-year conventional mortgage. The borrowing cost coupled with tighter credit access has reduced the number of qualified buyers, producing a supply constriction. Many current homeowners, sit on mortgages at 4% or less. Similarly, seniors with homes that don’t have a mortgage, have valuation issues such that the price that today, equates to market, prices many buyers out of purchasing options.
In 2010, I wrote a post regarding the connecting points between senior housing and the residential real estate market. Readers may recall, for somewhat different reasons, the volatility of residential real estate in 2010 and 2011. That post is available here: https://rhislop3.com/2010/03/23/the-housing-market-and-ccrc-prospects-what-each-means-to-the-other/
When residential real estate approaches illiquidity, where we are now, prices rise. As prices rise, sales reduce. For seniors, this is problematic as the universe of qualified buyers shrinks. When a senior needs to move for care purposes, the inability to efficiently sell a primary residence can create tension or alternatively, a source of funds for care problem. For example, a movement to an entry fee CCRC is most often contingent on a home sale with the proceeds from the sale, the source of funds for the entry fee.
The recent May report from the National Association of Realtors on home sales, illustrates a uniquely constricted housing market. Existing-Home Sales Edged Lower by 0.7% in May as Median Sales Price Reached Record High of $419,300 (nar.realtor)
- Existing-home sales slipped 0.7% in May to a seasonally adjusted annual rate of 4.11 million. Sales descended 2.8% from one year ago.
- The median existing-home sales price jumped 5.8% from May 2023 to $419,300 – the highest price ever recorded and the eleventh consecutive month of year-over-year price gains.
- The inventory of unsold existing homes grew 6.7% from the previous month to 1.28 million at the end of May, or the equivalent of 3.7 months’ supply at the current monthly sales pace.
At the current median price and the average 30-year mortgage rate at 7%, more than 2/3rds (70 plus %) of U.S. citizens cannot afford to purchase a median priced home (median household income of $78,171 with down payment of 20% of purchase price). This causes the illiquidity factor to be very high in current residential markets.
