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A lot happened in 2016. It was a year that will go down in the history books as extraordinary.

Political and economic disruptions (Brexit and the unexpected U.S. election results among them) occurred both globally and domestically. There were several significant shifts—in politics and the economy; in attitudes regarding globalization’s benefits and costs; and in the availability of debt and the cost of capital, particularly with interest rates.

Seeds of change were planted in the skilled nursing and post-acute care sector, as well, with the ongoing movement away from fee-for-service to value-based payment systems.

All in all, these changes—whether one considers them to be good or not so good—have set the stage for 2017. This article provides a broad overview of current conditions and serves as a backdrop for the seniors housing and care sector this coming year.

For starters, the economy is in good shape, by many measures. With 5.5 million unfilled job openings, an average of 180,000 jobs being created every month, and an unemployment rate of 4.7 percent as of December 2016, the labor market is close to full employment.

Since the low point of the recession in 2010, more than 15 million jobs have been created in the U.S. economy, and the jobless rate is half its peak of 10 percent in October 2009. Over the past 12 months, health care alone has generated 407,000 jobs.

Consumer confidence is strong. The housing market continues to improve. The stock market has established new highs. And largely as a result of gains in the value of real estate and in equities, household net worth rose by more than $1 trillion in the second quarter of 2016, to a record peak of $89 trillion.

While a lot of those gains have gone to higher-end households, incomes have risen for all households as well. Indeed, inflation-adjusted median household income rose by 5.2 percent in 2015, the largest increase since at least 1968, while the poverty rate fell to a post-recession low (although it remains uncomfortably high at 13.5 percent, compared with 11 percent in 2000).

For households headed by someone 65 or older, inflation-adjusted median household income rose by 4.3 percent in 2016, less than the 7 percent gain achieved by those households headed by someone aged 34 to 45, but better than the decline of 1.2 percent seen by the older cohort in 2014.

On the less bright side are broad measures of economic growth, such as Gross Domestic Product, which grew at a less than 2 percent annualized rate for nearly one year.

Productivity growth has also been disappointing, averaging less than 1 percent over the past five years. The labor force participation rate remains at levels last seen in the 1970s, due in part to the retirement of baby boomers.

Wage growth has also been relatively weak, despite a tightening of the labor market. Average hourly earnings grew by 2.8 percent in 2016, higher than the increase of 2.3 percent in 2015 and 2.1 percent in 2014.

Increases in minimum wage rates in many states and tightening labor markets may start to put further upward pressure on this measure of earnings. Anecdotally, operators of seniors housing and care properties are reporting upward pressures on wage rates, a significant concern since labor expenses often account for two-thirds of an operator’s aggregate expenses.

And finally, financing costs are rising, although they still remain low by historical standards. The 10-year Treasury bond fell to a record low of 1.3 percent in the immediate aftermath of Brexit last June, and as of Feb. 7, 2017, it stood at 2.4 percent.

With regard to broad trends in the seniors housing and care sector, the NIC MAP® Data Service has timely and relevant measures to gauge recent performance and set the stage for 2017.

At the national level, the seniors housing sector appears to be in equilibrium. Occupancy has oscillated around 89.8 percent for the past three years. Despite the run-up in construction and the delivery of roughly 36,000 seniors housing units since late 2013 in the nation’s largest 31 metropolitan area markets, demand has largely matched new supply. Moreover, asking rent growth continues to improve and recently reached its highest pace in this cycle.

At the local level, the data show that not all markets are created equal. In some instances, markets are booming, as in San Jose, Calif., while others are not, such as in San Antonio. As with any real estate, it’s all about location, and, subsequently, it’s all about local market area supply and demand conditions.

Influencing factors related to supply conditions include the availability of labor, natural and regulatory barriers to entry, entitlement procedures, and the competitive landscape. And for demand, influencing factors often include the concentration and number of adult children and retirees, income levels, net worth, home ownership rates, the velocity of home sales and prices, and broad-based employment conditions and drivers.

For skilled nursing, NIC’s third-quarter 2016 Skilled Nursing Data Report, released in December, showed that monthly occupancy remained low, at 82.5 percent in September, up slightly from the five-year low of 82.3 percent in July, but below the recent high of 85.6 percent rate achieved in February 2014.

There are a number of care delivery and reimbursement initiatives that have continued to play a role in the decline of occupancy, including the increased penetration of managed Medicare (that is, Medicare Advantage).

For example, acute care providers, managed care payers, and conveners have initiatives in place to divert skilled nursing referrals to home health and other community-based care settings. In addition, patients that are referred to skilled nursing are managed by payers to reduce length of stay, which creates a reduction in Medicare and managed care days.

Adding to the operational challenges has been the decline in rates from increased enrollment in managed Medicare plans, which has given more pricing power to insurance companies to negotiate reimbursement rates with providers.

In fact, according to NIC’s data, there has been an 11.6 percent decrease in managed care rates, from $498.65 in September 2011 to $440.78 in the third quarter of 2016.

Skilled mix, which represents mostly Medicare and managed care residents, continued its downward trend in the third quarter, declining from 24.4 percent in June of 2016 to 23.8 percent most recently. This was driven by the low third-quarter Medicare mix, which was most likely attributable to fewer Medicare patient days. Since higher reimbursement rates are associated with skilled mix, the downward pressure on this mix could influence profitability.

More broadly, change is the operative word for 2017 with regard to skilled nursing. Despite the change in administration from President Obama to President Trump, it is likely that the push toward value-based purchasing and away from fee-for-service by the Centers for Medicare & Medicaid Services will continue.

The “new normal” for skilled nursing reimbursement is likely to focus on care transitions—coordinated care—that are built on a foundation of measurable quality outcomes and data sharing. Mandatory and voluntary bundles, accountable care organizations, managed long term care supports and services, and value-based purchasing for hospitals are likely to become more common. Eventually, this transition will incorporate more risk sharing on the part of health care providers.

Health care reform, or the rolling back of all or some of President Obama’s signature Affordable Care Act (ACA) has been high on the list of President Trump’s stated priorities. Until the details are more fully revealed, it is difficult to determine the impact on seniors housing, although the private-pay sector is not expected to be greatly affected.

Looking ahead more broadly, November’s presidential election results have altered the outlook for the U.S. economy. While specifics are not yet known, comments to date provide clues to the policies likely to be implemented.

The new administration is expected to follow a fiscally expansive policy of higher spending on infrastructure and defense, while cutting taxes. Immigration reform, a renegotiation of trade agreements, a loosening of restrictions on fossil fuel production, and an overhaul of the ACA are already priority policy changes.

When all is said and done, President Trump’s policies are just unfolding. Their economic impact will be repeatedly digested, studied, and assessed by analysts in the months and years ahead. Certainly, a critical question that remains on the table is how the federal government will pay for increased spending on infrastructure and defense, while reducing tax rates, without significantly raising the U.S. budget deficit (a key Republican stance). Budget pressures will make it all the more challenging for the government to maintain entitlement programs such as Social Security and Medicare. Stay tuned!