“Real Estate Investors Who Shorted Subprime Mortgages Say This Housing Boom Is In A Bubble, too.”
“America’s Housing Market Is Officially Over-Heating Everywhere.”

“Will The Current Boom Housing Market Crash Dive Or Crash Land?”

“Everyone Knows The Housing Market Craziness Can’t Last, Then The First Dip Turns Into A Big Drop.”

These are some of the latest headlines predicting an imminent housing crash, but should they deter you from investing in other real estate segments – specifically commercial real estate (CRE)? Not necessarily.

You only have to look back at the Great Recession of 2008 for a case study on the correlation between the housing market and other real estate sectors.

The Great Recession was unique because the real estate crash was the cause of the downturn and not the other way around. Fueled by subprime mortgages and mortgage-backed securities that bundled these mortgages into securities and traded them on the public markets, the housing market boomed as new buyers and investors flooded the market. Then this whole house of cards came crashing down when borrowers started defaulting on these subprime loans in droves – bursting the housing bubble and plunging the economy into recession.

It’s well-established that certain sectors of CRE are more correlated to the broader economy than others. The Great Recession bore this out.

Logically, in a recession, with lagging sales and many companies downsizing, the two CRE sectors most directly impacted by a downturn would be office and retail. On the other end of the spectrum are segments that thrive in a downturn as households downsize. Multifamily and affordable housing are the segments that do well in downturns. Then there are sectors that, because of demographics and demand, are recession-resistant. Senior housing is one of these sectors.

Senior housing’s strong performance following the crash of the housing and financial markets in 2008 established this sector as a viable recession-resistant asset class.

Even during the depth of the financial crisis, seniors housing only saw negative absorption for one quarter. The National Council of Real Estate Investment Fiduciaries (NCREIF) calculations show that seniors housing is the only major property sector to provide double-digit returns to investors in the decade since the recession began.

Looking forward, a combination of demographic, cultural, and healthcare factors establishes senior housing as a solid performer for decades to come. With some 75 million Baby Boomers living in the U.S. and around 3 million Americans turning 65 every year, the senior population will grow to 33.6 million in 2029.

A study NIC conducted with NORC at the University of Chicago uncovers a particularly sharp rise in middle-income, 75+ seniors, who will nearly double to 14.4 million within a decade. For those over the age of 85, one in three will be “high needs,” with three or more chronic conditions and one or more limitations in activities of daily living.

The sharp rise in the number of seniors and the rising need for those requiring care and assistance are two of the factors fueling demand for senior housing. On top of those factors, there will be fewer and fewer adult children who will take care of their elderly parents.

In 2000, the ratio of non-seniors (persons under age 65) to seniors was 15 to one. That comparison today is seven to one and will be at four to one within the next decade, leaving fewer and fewer adult children to take care of seniors.

A potential housing bubble shouldn’t scare investors away from certain CRE asset classes since not all are equally correlated with the broader economy. Some like office and retail are highly correlated, while some, like multifamily and affordable housing, move in the opposite direction.

Senior housing is in a class of its own – drawing from demographic, cultural, and healthcare factors to establish its recession resilience. These factors aren’t going away any time soon, and that’s why senior housing will continue to be a viable investment option for years to come.