NIC Notes

Insights in Seniors Housing & Care

By: Lisa McCracken  |  March 28, 2024

No Rate Cuts for March, but Reductions Likely on the Horizon

Economic Trends  |  Senior Housing

Lisa McCracken HAs anticipated, at last week’s meeting of the Federal Reserve Board, rates were held steady at 5.25 to 5.50%. Several months ago, there was hope of a potential move towards rate reductions at this March meeting, but as inflation and unemployment numbers have been higher than projected, the likelihood for rate cuts moved further into 2024. In his remarks, Chairman Jerome Powell acknowledged that labor conditions remain tight, but that labor-related supply and demand issues are coming more into balance, overall unemployment figures are low, and we are seeing more nominal wage growth compared to recent years. He noted that, while these indicators are positive, the demand for workers is greater than the available supply. Chairman Powell also noted that, while inflation has come down, current levels remain above the 2% goal. Projections are for continued drops in the inflation rate throughout 2024 and into 2025 and 2026.  

With acknowledgement that the Fed believes the current policy rate is at its peak for this tightening cycle, the primary questions now revert to the timing of the first rate cut as well as how many reductions are anticipated to follow for the remainder of 2024. The Federal Open Market Committee (FOMC) member projections for 2024 rate cuts reveal that 15 out of 19 anticipate that the Federal Funds Rate will fall below 5% by the end of the year, coming in at 4.6%. If the Federal Reserve feels that inflationary pressures and employment figures continue to move in the right direction, even if not in a neat, linear fashion, three rate reductions are anticipated, with the first likely to come in June. 

What Does This Mean for Senior Housing and Care? 

The higher interest rate environment has significantly impacted the senior housing sector related to limited access to capital and higher cost of capital for those who can access it. It is estimated that roughly $18 billion in senior housing loans are maturing in 2024 and 2025. Those loans are maturing in a much higher interest rate environment than when they were issued. Therefore, any rate reductions initiated in 2024 will help to make refinancing more viable. As the capital environment loosens and debt becomes more accessible, this should translate into higher transaction levels and an uptick in development activity. However, it is going to take a few rate reductions before we start to see a meaningful difference in the behaviors of senior housing developers, operators, and capital partners. The industry is also likely to benefit from a positive psychological reaction when rate reductions begin, increasing optimism among those in the field that better times are ahead.  

The next meeting of the Federal Reserve Board is April 30th to May 1st with the June meeting to follow on the 11th and 12th of the month. June 12th is a day whereby other notable events have occurred, such as President Reagan’s speech in Berlin to “tear down this wall” and the day when a young girl named Anne Frank received a diary for her 13th birthday. A 2024 Fed Rate reduction on June 12th may not carry similar historical staying power, but it would sure be welcomed by many. As we sit here today, all eyes are on June.  

About Lisa McCracken

Lisa McCracken, Head of Research & Analytics at the National Investment Center for Seniors Housing & Care (NIC), oversees NIC’s research and analytics team, which develops actionable, data-driven insights on industry challenges and opportunities and showcases practical examples of how organizations nationwide are embracing opportunities to meet the demands of a changing marketplace. Additionally, Lisa oversees a robust research agenda with nationally recognized partners to help the next generation of senior housing and care leaders address evolving and dramatically different consumer preferences and needs. Prior to joining NIC, Lisa served as director of senior living research and development with Ziegler, a leading investment bank for senior housing and care, where she oversaw research staff supporting the senior living, senior housing, and related corporate finance healthcare practices. Lisa began her career as a research analyst at Holleran, a healthcare and aging services research and consulting firm, where she was successively promoted to become vice president of research, managing partner and ultimately president between 2009 and 2013. She is a nationally recognized thought leader and public speaker and has been the lead researcher on a number of national research studies such as the LeadingAge Ziegler 200 and other industry-wide publications.

Connect with Lisa McCracken

Read More by Lisa McCracken