A surge in consumer confidence, rising home prices and sales, and faster selling times for properties on the market are all positive signs for the senior housing industry. It’s enough to make some market analysts believe seniors have finally reached the seventh stage of recovering from housing market-related grief: acceptance and hope.
“About two years ago the market was in shock, going through the stages of grief, aligned with the housing market,” says Michael Starke, owner and managing director of senior market feasibility firm PMD Advisory Services, LLC. “They were in [the] denial, bargaining [stages]. But now the majority have moved into a period of acceptance. There is a lot more willingness on the part of the senior to start looking at moving. They’re more confident about the ability to sell their home.”
Part of that includes adjusted expectations as to what their homes are worth, he adds, and based on more than 100 focus groups PMD Advisory has conducted on about 1,500 seniors around the country, many now feel they can sell and get a fair deal—even if it’s less than what they might have gotten four to five years ago.
“It’s a trend I’m excited about,” Starke said. “Seniors seem to be in a place of acceptance about their economic situation and their home values. The activity level is starting to move, and that’s a really good sign.”
Existing home sales rose in April to the highest level since November 2009, according to the National Association of Realtors, up 9.7% from the previous year.
Properties are also selling more quickly, on the market for a median 46 days in April compared to 62 days just one month prior—the fewest days since the NAR started monitoring it in May 2011.
The slow but steady recovery of the housing market is good news for the senior living industry, and Chris McGraw, senior research analyst at the National Investment Center (NIC) for the Seniors Housing & Care Industry, noted that existing home sales are a better indicator for the independent living market than are home prices.
“At one point in time, the relationship [between housing prices and occupancy] was very strong during 2006 and 2009 when pretty much all economic data was plummeting,” said McGraw. ”Since 2009, the relationship hasn’t been quite as strong, because when you’re looking at occupancy, there are a whole lot of factors going into play.”
Chart credit: NIC—NIC MAP & Case-Shiller Home Price Indices
Since bottoming out at 86.8% in the third quarter of 2009, independent living reached 89.3% as of the end of the first quarter of 2013, according to NIC data. Meanwhile, home prices increased 12.1% in April 2013 compared to the previous year—the most in more than seven years, according to CoreLogic.
However, independent living census is still below pre-recession peaks of 92.5%, reached in the fourth quarter of 2005 and again in the first quarter of 2007, and while there appears to be a correlation between occupancy and home prices on the recovery side, there’s more to the picture.
“Housing does play a piece, but it’s not the sole driver,” McGraw says of independent living occupancy.
The supply of new units is one piece of the puzzle, according to him, along with the performance of the stock market and its impact on seniors’ retirement portfolios, employment rates, consumer confidence, and the economy in general.
New construction for senior living stalled almost completely in the wake of the recession, but with a robust U.S. stock market spurred by low interest rates, capital is less constrained, say developers.
Another positive: consumer confidence reached a six-year high in May of 84.5 on the Thomson-Reuters/University of Michigan consumer sentiment index.
“The surge in consumer confidence is exactly the type of economic jumpstart the Federal Reserve intended to result from its aggressive policies,” said Richard Curtin, chief economist at Surveys of Consumers at Thomson-Reuters/University of Michigan, in a statement.
But there are caveats, including unemployment rates hovering at 7.6% through May 2013 and a recent report from the St. Louis Federal Reserve finding that household wealth still lags behind pre-recession levels when factoring in inflation.
“It will take actual and repeated income increases,” Curtain said, “rather than simply a renewed optimistic outlook for consumers to permanently revise their income expectations upward.”