After home values tanked as much as 30% from 2006 levels in certain parts of the country, according to Case-Shiller home price indices, some senior housing operators have been forced to purchase seniors’ homes in order to attract new residents to their facilities.
Home purchase programs function as an agreement that a senior housing company will purchase a prospective resident’s home after it has spent a certain amount of time on the market without selling. The house is generally purchased at a previously agreed-upon price, usually obtained from a third-party appraisal.
Most programs have different components as to how long a house must remain on a market, and at what price, before the senior living company buys it. The program allows seniors to enter a senior living community with a down payment, rather than paying the full cost of the entrance fee up front. The house’s eventual sale then functions as a promissory note, and its proceeds go to pay off the rest of the entrance fee, with any remainder going back to the senior.
Brookdale Senior Living, headquartered in Brentwood, Tenn., is one such company that offers this, although Chris Bird, a divisional vice president of operations, says it’s not exactly a common practice as only 12% of the company’s communities have an entrance fee; the rest are rental.
“For Brookdale, it’s a practice that we brought back to the table in 2008, when housing started to slow down, and prices started to erode in resale values,” says Bird. “We wanted to inject some opportunities for seniors to enter Brookdale Living.”
That year, 15% of residents entering the communities that offered the home purchase contract utilized the program. One-quarter of incoming residents used the program in 2009, and by 2010, nearly four out of ten, at 38%, participate in a form of the program, says Bird.
Since the housing purchase program started in 2008, Brookdale has seen an uptick in sales and occupancy, and now in 2011, move-ins have increased 31%, says Bird.
Occupancy rates remain steady in independent living facilities, at 87.7% in the second quarter of 2011, unchanged from the previous quarter, according to data from the National Investment Center for the Seniors Housing and Care Industry, although the seniors housing annual inventory growth rate was down 1.1% for the quarter compared to the previous year—the lowest level seen in the current market cycle.
However, steady occupancy can be attributed more to high demand paired with low supply rather than seniors flocking to pay steep entrance fees, and in response, Covenant Retirement Community Windsor Parks, located near Chicago, Ill., joined the ranks of retirement communities that offer home purchase or sale programs.
The programs, implemented in 2009, have been extremely beneficial as one third of entrants into Covenant Retirement Communities use either the home sale or home purchase programs, or a combination of the two, says Julie Gambino, director of sales and marketing at Windsor Parks.
“We want to get people to move in, and it’s harder for older adults to sell their homes in the current market. I do foresee that there will continue to be a need for this program,” says Gambino.
Although a better housing market will limit the need for such a program, Gambino says those days won’t arrive for a while.
“As the economy changes, there will be less of a need because houses will be selling quicker. Until 2018, at least, the forecast is that the Illinois market won’t be stable, and we want to get people moved in in the meantime,” she says.
Windsor Park facilitates its home purchase program through Moving Station, whose senior division works with multiple retirement communities throughout the nation. Vice president Patti Saulig says the housing market won’t get better for another few years, furthering the need for her company’s services. She says there will be ongoing concern for seniors about selling homes, and this extends to the FHA-insured loan limit reduction.
“We do not see the real estate industry turning around in the next couple years,” says Saulig, adding that she thinks it will get worse before it starts to improve.
The Department of Housing and Urban Development recently announced that the limit for FHA-insured loans will be lowered from $729,000 to $625,000 in October. The lower limit means some borrowers will be unable to get an FHA-insured loan, which by extension means it will be even harder for baby boomers to sell their homes and downsize into alternative living arrangements, such as independent living facilities or continuing care retirement communities.
“Anything that limits what today’s borrower can qualify for ultimately affects anyone trying to sell a home these days,” says John Walsh, president of Total Mortgage Services, LLC, based in Milford, Conn. ‘“This reduction in the FHA limits will definitely affect some people’s ability to purchase a home once the new limits are put into effect.”
Both Saulig and Bird agree that there will continue to be a need for home purchase programs in the next few years, although many hope the service won’t be necessary for too much longer.
“The intention is, these are short-term programs,” says James Janicki, the senior director of marketing for Riverside Health System, located in Virginia. “When the economy rebounds, we don’t expect to have those.”
Although only two people have entered Riverside’s home purchase program since they began offering it in 2009, it has increased leads, says Janicki, adding that many people who were initially drawn in through the program went on to choose another financing option.
“It definitely made incremental sales that we wouldn’t have made without the program,” he says. And while some didn’t feel comfortable with the program’s guidelines—Riverside agrees to buy a house if it hasn’t sold after being on the market for 15 months, at 80% of its appraised value—”Others viewed it as peace of mind, knowing their house would be sold.”
Written by Alyssa Gerace