A decline in housing prices could slow the “current strong pace” of independent living sales and slow the sector’s recovery, according to a new report from Fitch Ratings.
Home prices dropped by 0.2% in July, the first national decline in housing prices since 2012, according to the report.
The independent living lifestyle often is what draws seniors to life plan / continuing care retirement communities, and home sales typically are the main source of revenue that allows residents to pay the CCRC entrance fee, Fitch said.
“Judicious use of marketing and sales strategies can sustain sales and ease the move into [a life plan community], as happened in 2008-2009,” however, Fitch said. “These include real estate sale and moving services, promissory note programs and other incentives, such as apartment upgrades or service fees waivers for the first month or two of residency.”
In addition to home values, time constraints such as health issues might factor into decisions to move into a community, the ratings agency noted.
Also according to the report, CCRC entrance fees are inching up as housing prices decline. For now, however, Fitch says, entrance fees have grown by just a fraction of home price appreciation over the past few years.
Fitch estimates that national home prices were overvalued by 12.2% for the second quarter on a population-weighted average basis. The ratings agency expects that the overvaluation will moderate in the second half of the year with the declining trend in home prices.
“While we anticipate home price corrections, a housing market crash, as was seen during 2008–2009, is highly unlikely. Home prices are expected to moderate further with elevated mortgage rates,” Fitch noted. “Even if home prices decline beyond our overvaluation estimates, we believe [life plan community] entrance fee pricing can remain stable.”
