Seniors crushed by housing crisis

Many elderly Americans once planned to sell their homes to finance their retirement care. But with both home values and investment portfolios shrinking, they are now struggling to cope.

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By David Koeppel, MSN Money

At 94, Sylvia Merlin is stuck.

The widow can't sell her home or fall back on her investments. She's lost $200,000 in the stock market since the beginning of 2008, she says. Like a growing number of seniors, she's been unable to move into the retirement community she had planned to because of the shattered housing market and her dwindling retirement portfolio.

And Merlin is running out of time: Her health is deteriorating, and her home is increasingly unlivable.
94 and nowhere to go

"Older Americans are getting whacked twice," says Thomas Shapiro, the director of the Institute on Assets and Social Policy at Brandeis University, and the co-author of a study titled "Living Longer on Less." "Home equity, which is their largest reservoir of wealth and their largest expense, has taken a tremendous hit. Portfolios have taken the same hit as everyone else, but seniors don't have the same length of time to dig themselves out."

Elderly Americans with fixed incomes are increasingly being compelled to make seemingly impossible decisions, Shapiro says, such as choosing between paying their housing bills or their medical costs.

More than 54% of all senior households "do not have sufficient financial resources to meet median projected expenses based on their current financial net worth, projected Social Security and pension incomes," according to the Brandeis study.

Some seniors are moving in with their children because they can't pay all the bills. Census reports show multigenerational families are on the rise in part, experts say, because of the housing and larger economic crisis. An estimated 3.6 million parents (not all of them elderly) live with their adult children, according to 2007 census data, up from 2.3 million in 2000, an increase of 57%. In those households, the number of parents 65 and older was up 62%.

Others are turning to reverse mortgages, loans available for seniors 62 and older that allow them to get cash based on the value of their home with no monthly mortgage payments. Such a loan is repaid out of proceeds from the eventual sale of the home or from the borrower's estate after his or her death. Should you get a reverse mortgage?

But there are downsides to reverse mortgages. They include expensive origination fees that can run 5% to 6% of a home's value. There were 112,100 reverse mortgages from October 2007 through September 2008, according to the National Reverse Mortgage Lenders Association, a record for the industry and an increase of 4% since 2007. That's more than two and half times the number of reverse mortgages granted in 2005.

Merlin had counted on selling her spacious two-bedroom apartment in Bala Cynwyd, a Philadelphia suburb, for $300,000. But as of last week, she hadn't received any offers since the condominium was put on the market in May. She wants to use money from a

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sale to move to Martin's Run Retirement Community in Media, Pa., which costs $130,000 to buy in and $2,800 a month in rent.

The retirement community would provide Merlin the care she needs. She suffers from chronic obstructive pulmonary disease and is hooked up to oxygen daily. Her home is increasingly impractical and difficult for her to navigate. She has hired her doorman's wife to help her shower and shop for food. And she doesn't see moving in with any of her four children as an option.

Senior living facilities across the country are reporting declines in occupancy because people like Merlin have had to delay or give up on their plans to move.

Take Juniper Village, an assisted-living facility in Cape Coral, Fla. Its occupancy rate has dropped 14 percentage points since last year, says Eileyn Sobeck-Bador, the residence's director of community relations.

"The situation is not good," Sobeck-Bador says. "A lot of older folks need to sell homes before they move to assisted living because they need the assets. Seniors say they can't afford it."

Other senior facilities in Florida are reporting vacancy rates as high as 20% to 30%. Nationally, occupancy rates for independent-living and skilled-nursing facilities have fallen about 4 percentage points since the first quarter of 2007, according to the National Investment Center for the Seniors Housing and Care Industry.

Sobeck-Bador has found that many of the younger seniors, those in their 60s, don't have enough assets to move into Juniper Village, which costs $2,670 a month with a one-time $1,500 move-in fee. The facility has offered to waive the move-in fee and help new residents by paying for moving expenses.

Failure to sell homes has also prevented many seniors in California's Central Valley from moving to assisted-living facilities, says Michelle Amaral, an assistant professor of economics at the University of the Pacific in Stockton, Calif. The area -- including Sacramento, Fresno, Modesto, Stockton and Bakersfield -- has had some of the highest foreclosure rates in the country, according toRealtyTrac.

"We've been hit so hard by the housing market that people have been feeling the impact of the crisis a bit longer than the rest of the country," Amaral says. "It's a huge problem right now. In the majority of cases, it makes more sense for people to cut losses and sell their homes at a low price, because the prices are probably going to drop even lower."

Casa de Modesto, an independent-living, assisted-living and nursing center in Modesto, used to have a three-year waiting list for new residents, but that has been practically eliminated. (There are 150 people the list, but none is willing to move in right now.)

Independent-living occupancy at the center is down 10% since 2006. Assisted-living occupancy has dropped 15% over the same period.

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Another senior residence in the Central Valley has been offering the first three months' rent free as an incentive to lure new customers, Amaral says.

Housing is not the only critical issue when it comes to how this financial crisis is affecting the aging population. Another is even more potentially dangerous.

Amaral, who specializes in health economics, says that in a recent university community outreach program to the elderly, many seniors said increased housing and other expenses have changed the way they buy and take their medications. Some are buying cheaper drugs, splitting pills or stopping medication altogether, without consulting their doctors or pharmacists, she says.

Patricia Cauley, 65, has few health problems. Still, she's struggling to make the changes she needs to adequately prepare for her future.

Her three-bedroom house in Seneca, S.C., has languished on the market for nearly three years. The asking price has been $200,000, but she plans to lower it in the spring if it still hasn't sold.

Cauley says she is lonely without her husband, who died of cancer several years ago, and wants to downsize to a smaller, cheaper patio home for about $125,000 and move closer to her son in Anderson, S.C., a city with more restaurants and activities for seniors.

But she's tied to her $1,000 monthly mortgage bills on her Seneca home. And to complicate the situation, she recently inherited a half-share in her father's Florida condominium. At $215,000, she hasn't been able to sell that property either.

"I feel like I'm stuck, like I can't make a move until I get rid of this place," Cauley says. "It's a lovely place, but I haven't gotten one bite. As I get older, I'd like to be closer to my son. If I need any help, he doesn't have to travel 35 miles; he'll be just around the block."

Produced by Anh Ly

Published Feb. 25, 2009