To curb inflation, the Federal Reserve has raised interest rates to levels not seen since before the Great Recession. Likewise, mortgage rates have risen to levels last seen in the 1990s. NIC MAP (R) Data Service notes that in, 2022, senior housing properties in a number of metro areas began recovering occupancies lost during the Covid-19 pandemic. Implied here is that seniors postponed moving until after the pandemic. Since then, there has been some discussion that the pandemic underscores the importance of senior housing as a needs-based housing product, yet a recent note by Ziegler shows that this is not the case. Some of my own research indicates that seniors have more choice and bargaining power when considering a move into senior housing properties. One wonders what effect interest rates will have on senior citizens planning for retirement, looking to renovate to accommodate aging in place, wanting to downsize, or seeking personal care and support in traditional senior housing and care properties.
Initial, back-of-the-envelope calculations show that rising interest rates could muddle this post-pandemic recovery, not just for senior housing providers but for seniors themselves. Looking at data from 2010 - 2019, the chart below compares the population aged 65 or older that moved domestically within the last year to the average 30-year fixed rate mortgage in the United States during the year prior to the move.
Domestic Movers Aged 65+ vs. 30-Year Fixed Mortgage Rates
Source: Author analysis of US Census Bureau ACS 1-Year Estimate & Freddie Mac data, 2010 - 2019.
What we see is a negative relationship between mortgage rates and 65+ movers. Rising rates are associated with fewer movers. Again, this is an initial analysis - food for thought really - but the current surge of pent-up demand providers are experiencing could wane or at least be muted by rising mortgage rates. Why? To make a move, one needs to sell their home. To buy a home, one often needs a mortgage and borrowing costs are more expensive. Now, there are a lot of factors driving one’s ability to sell their home - local housing markets, housing supply, the economy, etc. - but the relationship suggests frictions that need to be factored into pricing and marketing strategies.
Moreover, suppose a senior wants to renovate their home to accommodate aging by adding a stair lift, converting to European showers, or smoothing transitions from rooms and at entrances. One way to finance that would be a home equity line of credit or reverse mortgage. Higher interest rates might delay those needed renovations or housing transitions contributing to lower quality of life, higher risk for potential health care episodes like falls, and generally delaying moves into supportive living environments.
Dan Lindberg is the founder and principal of Applied Economic Insight LLC, which enables municipalities, developers, owners, and operators to enliven residential, senior housing, and healthcare real estate. He has a graduate degree in economics, teaches courses in business analytics at Marquette University, and his article “The price elasticity of senior housing demand: is it a necessity or a luxury?” published in Business Economics won the 2022 Contributed Paper Award with the National Association for Business Economics. His firm is part of the network of healthcare consultants, Stackpole and Associates.