Cognitive decline of older Americans affecting housing market

Baby Boomers represent new challenges for both borrowers and lenders, researcher says

A new report finds a strong correlation between the future housing market and the cognitive decline of older Americans.

The decline is related to difficulties individuals have as they age with memory, their attention span, problem solving and judgment.

The report by the Mortgage Bankers Association's Research Institute for Housing America (RIHA) finds that normal cognitive aging also correlates to a potential borrower's ability to make decisions relating to their own housing and financial situation.

"As the Baby Boom begins to enter retirement years, new challenges are arising with significant implications for both borrowers and lenders," said Gary V. Engelhardt, a Melvin A. Eggers faculty scholar and professor of Economics in the Maxwell School of Citizenship and Public Affairs at Syracuse University.

"In particular, given the impact of aging on memory and other cognitive skills, there is a need to consider the implication for financial decisions made by older individuals," Engelhardt writes in his report, "Cognition and the Housing Behavior of Older Americans."

"By the time individuals are arriving into traditional retirement ages, when many important financial decisions are made, cognitive skills are already in decline as part of normal cognitive aging," he states.

Engelhardt continues:

"The Baby Boomers are entering their traditional retirement years with an expectation of living longer than prior generations but also with more debt, meaning that they will have to make increasingly complex housing and financial decisions. In addition, the number of Americans over the age of 60 will grow to nearly 62 million by 2024."

Adds Lynn Fisher, executive director of RIHA and the Mortgage Bankers Association's vice president for Research and Economics: "This study highlights the fact that memory loss in particular raises particular challenges for the financial well-being of older Americans and suggests that we may need to reassess how the mortgage industry designs, originates and services financial products for seniors."

Key findings in the report include:

•28% of homeowners and 36% of renters aged 65 and older in 2012 rated themselves as having a fair or poor memory.

•7% of homeowners and 16% of renters aged 65 and older in 2012 self-reported a medical diagnosis of memory disease.

•For older homeowners, memory and cognition hold relatively stable until the late 70s, then decline fairly rapidly.

•Likewise, the incidence of memory disease rises steadily with age. By age 90, about 20% of older homeowners suffer from memory disease.

•Typical declines in memory and cognition are associated with substantial increases in difficulty with managing money; a new diagnosis of memory disease, in particular, is associated with very large increases in such difficulty.

•A new diagnosis of memory disease is associated with large changes homeownership and shared living arrangements; typical declines in memory and cognition are associated with small to modest changes in these domains.

•Declines in memory and cognition are associated with an increase in mortgage delinquency, especially for older women.

The report used data on the housing, functional, health, and cognitive status of older Americans in 2012 from the Health and Retirement Study to profile the cognitive status of older Americans and examine the link between cognitive status and housing and mortgage decisions.

In general, the Bankers Association determined, there is a strong link between cognition and these decisions.

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