A possible recession is looming around the corner and could spell trouble for continuing care retirement / life plan communities, according to a report released Monday by Fitch Ratings.
The past year has been challenging for the sector, and medians and operating performance for CCRCs stand to come under increased pressure in the coming months, Fitch said.
“Slower economic growth and persistent inflation, especially from higher wages for hospitality and nursing staffing, as well as higher costs for food and other supplies, are leading Fitch economists to call for a possible recession in either late 2023 or early 2024,” Margaret Johnson, Fitch senior director and US life plan community group head, said in a press release issued Monday in conjunction with the annual medians report.
Life plan communities on the whole have experienced a decline in liquidity, the report noted. Although those communities have been able to pass along higher costs to residents, Fitch cautioned that rental fee increases are not a long-term fix.
“This scenario, if it plays out, could exacerbate the already ‘deteriorating’ sector outlook Fitch has in place for [life plan communities],” Johnson said. “Should these inflationary pressures persist beyond the next two years, [life plan communities] may encounter resistance from residents to the substantial rate increases that may be required to offset the added cost pressure.”
CCRCs with a significant skilled nursing component have reduced their number of beds to help keep finances in the black, according to the agency. Fewer beds mean fewer staff members needed, and that’s one way the retirement communities have been able to offset the ongoing concern of wage inflation.
“Slowing real estate price growth and higher mortgage rates are also an area of concern as most prospective [life plan community] residents need to sell a home to cover the initial entrance fee,” Johnson said.
The communities, she said, “could continue to struggle in the coming months as a possible recession looms.”