Better Market Spurs Seniors to Sell Homes, Move to Senior Housing by Marcus & Millichap
Thanks to an improving home sales market, many seniors are now in a better position to sell their old houses and relocate to independent living rental facilities or other senior housing, according to Marcus & Millichap’s “Seniors Housing Research Report” for the second half of 2013.
A sharp jump in home prices in the past year, fueled by low interest rates, has increased confidence among home sellers and dramatically reduced the number of homeowners who have been underwater on their mortgages by about 600 basis points in the past year to about 25.4 percent, according to the report.
“Occupancy in both independent living and CCRCs [continuing care retirement communities] is anticipated to rise this year, spurring rent growth in both product types,” the reported noted. “Assisted living facilities will also record an increase of demand, though a wave of construction in some areas will cause the national occupancy level to retreat modestly. The Southeast and Texas, in particular, could see softening conditions due to the prevalence of newly constructed assisted living facilities, including many with dementia care units.
“Buyers will be met with a greater number of listings in the coming months, which should help lift transaction velocity. Over the past 24 months, strong gains in rent and occupancy have generated healthier profit-and-loss statements. As a result, owners interested in divesting can prove a stronger operating history and list their properties at higher prices, and plenty of buyers await well-priced assets. Particularly, investor demand for assisted living properties, which make up nearly half of the seniors housing market, is currently insatiable. When combined with a dementia care unit, cap rates for these properties dip into the low-8 percent area, partially due to demographic trends. Currently, 40 percent of the population over the age of 85 has Alzheimer’s or related diseases, and that age cohort is anticipated to expand by 4 percent by 2017. At projected growth rates, 90,000 more seniors will be living with dementia in 2017, necessitating the need for additional facilities.”
The report offered these senior housing market highlights:
- Independent Living Facilities: Seniors will be better able to sell their homes in this market and move to independent living facilities, which will help lift occupancy rates to 90.2 percent. This is an annual improvement of 30 basis points. Rental rates should jump 2.5 percent to $2,810 per month.
- Assisted Living Facilities: Occupancy rates will fall about 60 basis points to 89.7 percent this year as new projects come out of the ground. Asking rents will rise, however, about 2.8 percent in 2013 to $4,180 per month.
- Skilled Nursing Facilities: Noncompetitive facilities will close this year; demand will further decline as well. Occupancy rates by year-end will be about 87.5 percent, a drop over the past year of 80 basis points. Rents on average will rise 2.6 percent to $275 per bed per day.
- Continuing Care Retirement Communities: As mentioned above, the recovering housing market will support demand in the coming months. Occupancy by year-end is anticipated to be 89.8 percent. This represents an annual climb of 30 basis points. Average rents also will climb modestly as demand supports higher rates.
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