The Federal Reserve’s move Wednesday to increase interest rates by 0.75% could slow new construction in senior housing, National Investment Center for Seniors Housing & Care Chief Economist Beth Burnham Mace told the McKnight’s Business Daily. “But that’s kind of a silver lining in a way for our industry, because it serves as a tailwind for occupancy,” she said.
The Fed’s action, made in an effort to slow inflation, marked the highest interest rates increase since 1994.
The consumer price index increased 8.6% in May from the same month a year ago, marking the highest reading since December 1981, the Labor Department noted Friday.
“The Fed is really trying to show with today’s increase that it’s taking inflation quite seriously,” Mace said. “The target rate for inflation is 2%. …The idea is that [raising interest rates] is going to slow the economy. Slowing demand should ultimately lower pressure on prices.”
The downside to the interest rates hike for senior housing, she said, is that fixed mortgage rates will increase, which could make it more difficult for older adults to sell their homes and move into senior living communities. The proceeds from home sales often are used to finance senior housing moves.
The other negative, Mace said, “is that the stock market is completely freaked out by this change in the interest rate market. They’re worried about recession.”
Many older adults looking to move into senior housing have invested in the stock market, she noted, and the rate hike will affect overall confidence. Because independent living primarily is a choice-based option rather than a needs-based one, Mace said, interest rates could be a factor in decision-making. Assisted living, on the other hand, generally is need-based, so the rate increase will have less of an effect on that sector, she said.
People will become increasingly concerned that the Fed will overstep and the economy will slip into a recession sometime in 2023, the economist predicted. With record inflation and in anticipation of increasing interest rates, Mace laid out her thoughts on the effect on the senior housing industry in the NIC Insider Newsletter last month.
Another interest rate increase could be coming when the central bank meets again in July, Federal Reserve Chairman Jerome Powell warned at a Wednesday afternoon press conference.
“From the perspective of today, either a 50-basis-point or a 75-basis-point increase seems most likely at our next meeting. …We anticipate that ongoing rate increases will be appropriate,” he said.