Navigating Economic Headwinds

April 6, 2026 —Forefront Report by Max Ault, Chief Growth Officer, TKC

The U.S. economy entered 2026 with positive momentum but now faces a volatile crosscurrent of geopolitical shock, persistent inflation, and policy uncertainty,  even as the aging services and senior housing sector posts its strongest fundamentals in over a decade. The Iran conflict has driven oil prices near $100 per barrel and pushed the S&P 500 down nearly 6% year-to-date. Consumer confidence plunged to the 2nd percentile of its historical range. Yet for operators, Q1 2026 presents a paradox: national combined occupancy reached 89.1% (approaching 20-year highs), operating margins surpassed 25%, and the first Baby Boomers turned 80 this year, while energy costs, construction input prices, and healthcare trend rates all accelerated sharply.

Geopolitical Shock Reshapes the Macro Landscape

The defining economic event of Q1 2026 is the U.S.-Israel military conflict with Iran, which has disrupted shipping through the Strait of Hormuz. WTI crude surged near $97-99 per barrel, the highest since 2022, and retail gasoline jumped 22% to $3.58 per gallon. This energy shock rippled through financial markets: the S&P 500 fell roughly 5.8% year-to-date through March 26, the Nasdaq entered correction territory (down 8.1%), and the Russell 2000 dropped 12.3%. The VIX volatility index climbed to 27.

Before the conflict, the economy was already sending mixed signals. Q4 2025 GDP was sharply revised down to 0.7% annualized from an initial estimate of 1.4%, dragged by a government shutdown that slashed federal outlays 17%. The Atlanta Fed’s GDPNow model estimates Q1 2026 GDP at 2.0%. February nonfarm payrolls came in at -92,000, partly distorted by a healthcare workers’ strike affecting 31,000 workers. The unemployment rate ticked up to 4.4%.

Consumer confidence has deteriorated sharply. The University of Michigan Consumer Sentiment Index plunged to 53.3 in final March reading in the 2nd percentile of its entire history, below the starting level of all six recessions since the index’s inception. The Conference Board’s February reading of 91.2 offered a slightly less alarming picture. Inflation remains concerningly sticky: February CPI registered 2.4% year-over-year (2.5% core), while core PCE came in at a concerning 3.1% in January, well above the Fed’s 2% target.

Fed Holds Steady as Markets Price a Potential Hike

The Federal Reserve held rates steady at 3.50-3.75% at both Q1 meetings. The March dot plot projected just one 25-basis-point cut for the remainder of 2026, down from two cuts projected in December. Markets are now pricing nearly a 50% probability of a rate hike by December, a dramatic reversal from early-year expectations of multiple cuts. Chair Powell’s term expires May 15, and the nomination of successor Kevin Warsh remains stalled in the Senate.

The tariff landscape shifted significantly in Q1. On February 20, the Supreme Court struck down IEEPA-based tariffs in a 6-3 ruling, removing roughly $180 billion in annualized tariff revenue. The administration responded with a 15% global tariff under Section 122 (limited to 150 days), now facing legal challenge from 24 states. The effective U.S. tariff rate stands at roughly 10.5-12%, still the highest sustained level since 1939, affecting construction materials, medical supplies, food imports, and capital equipment critical to CCRC operations.

Senior Living Posts Strong Fundamentals 

Against an uncertain national backdrop, the senior living and aging services field is experiencing a remarkable convergence of rising occupancy, constrained supply, and improving margins. Occupancy (national aggregate) reached 89.1% in Q4 2025, the 18th consecutive quarterly increase. NIC projects occupancy exceeding 90% by year-end 2026, potentially the highest in the 20-year history of NIC MAP tracking.  

For nonprofit operators specifically, Fitch reports independent living occupancy at 92-94% for investment-grade communities, with assisted living at 89-91% and skilled nursing at 85-87%. Across the 31 primary markets tracked by NIC, seven now exceed 90% occupancy, with Boston topping the list at 93.1%.

The supply picture is equally compelling. Annual inventory growth fell to just 0.7%, the lowest on record, with construction starts at near-historic lows. The average development cycle has stretched to 29 months. NIC estimates the industry needs 549,000 additional units by 2028 and 806,000 by 2030, yet development is proceeding at roughly a quarter of the necessary pace.

Operating margins surpassed 25% in mid-2025, the highest since 2018. Same-store asking rents grew 4.3% year-over-year in Q3 2025, with further rate increases of 4-6% planned for 2026. Entrance fee increases are projected at 5.0% on average for 2026. Notably, 70% of providers are considering mid-year monthly fee adjustments in 2026, reflecting confidence in pricing power but also ongoing cost pressures.

Operating Costs Face Mounting Pressure: Energy & Tariffs

While labor cost inflation is moderating, several other cost categories are trending unfavorably in Q1 2026, driven primarily by the Iran conflict and tariff policy. Energy costs represent the most acute near-term pressure. Brent crude settled near $94-99 per barrel in March, up roughly 50% year-to-date. Wholesale electricity prices are forecast at $51 per megawatt-hour for 2026, up 8.5% from 2025. Natural gas averages approximately $3.80 per MMBtu. Communities should budget for energy costs 5-10% above 2025 levels.

Food costs continue to rise above general inflation. The USDA projects overall food prices will increase 3.6% in 2026, with beef and veal up 5.5%, sugar up 6.7%, and coffee up approximately 20%. Institutional food service costs are projected to rise 3.3% per Vizient. Egg prices, which spiked dramatically during the 2025 avian flu outbreak, have begun normalizing (ish) down 42% year-over-year.

Insurance markets are transitioning from hard to stabilizing. Commercial property rates are declining 5-15% on renewal, driven by a quieter 2025 hurricane season. However, professional liability continues to harden: the top 50 malpractice awards averaged $56 million in 2024, up 75% from 2022. Workers’ compensation remains elevated for senior living due to an injury rate of 11.5 per 100 workers…more than four times the private sector average.

Construction costs are rising at a staggering pace in early 2026. Nonresidential input prices surged at a 7.1% annualized rate in January, with the first two months running at 12.6% annualized due to tariff-affected materials. Section 232 tariffs impose 50% duties on steel and aluminum, while combined tariffs on Canadian softwood lumber reach 45%. 

The 2026 Social Security COLA of 2.8% adds approximately $56 per month to the average retiree benefit, bringing it to roughly $2,064. After subtracting the $17.90 monthly increase in Medicare Part B premiums (now $202.90), the net gain is about $38 per month. Part D premiums declined slightly to $34.50 per month, and the $2,000 annual out-of-pocket cap on prescription drug costs continues to provide relief. However, AARP surveys show 77% of older adults consider a 3% COLA insufficient.

The housing market remains sluggish, which matters for entrance-fee communities. Existing home sales ran at 4.09 million annualized in February 2026, and mortgage rates of 6.37-6.49% continue to suppress transaction volumes. Median home prices are essentially flat year-over-year at $398,000, with J.P. Morgan forecasting 0% national appreciation for 2026. On the positive side, total home equity remains near a record $30 trillion, and foreclosure rates sit at historic lows.

Stock market weakness in Q1 eroded retirement portfolios after years of strong gains. The S&P 500’s 5.8% decline has reduced paper wealth. Average 401k balances reached $144,400 in Q3 2025, but Q1 2026 losses have reversed some of those gains. The net picture is that prospective residents have unprecedented wealth on paper, but converting that wealth to entrance fee cash takes longer in today’s slow housing market.

2026 Outlook: A Tale of Cautious Optimism

The economic outlook for the balance of 2026 and into 2027 hinges largely on the trajectory of the Iran conflict and its effect on energy prices and inflation. The Fed’s March projections call for 2.4% GDP growth in 2026 and a gradual return to 2% inflation by 2028, but these were finalized before the full extent of the oil shock was apparent. Goldman Sachs has already revised its 2026 GDP forecast down to 2.1% and raised its recession probability to 30%. Other forecasters range from 20% (New York Fed model, pre-conflict) to 40% (EY Parthenon).

For nonprofit CCRC operators, five key strategic considerations:

• Pricing power remains strong but must be exercised thoughtfully. With consumer confidence at recessionary levels, aggressive pricing could lengthen sales cycles.
• Capital project timing requires exceptional discipline. Construction input costs are surging (12.6% annualized in early 2026), but the supply-demand imbalance creates a compelling long-term case for expansion.
• The staffing mandate repeal is an opportunity, not a mandate to reduce staffing. Communities that maintain or improve staffing ratios can differentiate on quality.
• Healthcare cost trend rates demand strategic attention. At 8.5-9.5% annually, medical cost inflation is running roughly three times general CPI.
• The demographic wave has arrived. The first Boomers turn 80 in 2026, and the 75+ population will grow by 4 million by 2030.

Key Metrics At-A-Glance

Onward to the 2^nd Quarter: Navigating Volatility from a Position of Strength 

Q1 of this year marks an inflection point with the combined senior living and aging services operational recovery essentially complete: occupancy, margins, and pricing power all at multi-year or record highs. However, the macro environment is deteriorating at the margin, with the Iran conflict injecting stagflationary risk into an economy already navigating persistent inflation, tariff disruption, and a leadership transition at the Federal Reserve.

The strategic imperative for partners across the Kendal System should focus on leveraging current financial strength, robust occupancy, active bond markets, and expanding waitlists, while building resilience against cost pressures that show no signs of fully abating.

Communities that navigate this period most successfully will be those that invest boldly but selectively in expansion or key improvements to the existing physical plant, retain and develop their workforce as a competitive advantage rather than treating the staffing mandate repeal as an invitation to cut, and maintain transparent communication with residents about the economic forces shaping fee decisions.  The demographic opportunity of the next decade is enormous but capturing it requires disciplined execution through what promises to be a volatile near-term environment.