Credit Activity of Renters Much Stronger than Macroeconomic Indicators Would Suggest
New TransUnion Rental Housing Financial Impact Study shows positive signs for rental markets
Despite challenges brought on by the COVID-19 pandemic, renter credit activity was healthy in 2020 and signs point to even better days ahead in 2021. TransUnion’s (NYSE: TRU) 2021 Rental Housing Financial Impact Study includes analysis from nearly three million distinct individuals and 10,000+ properties between 2016 and 2020.
Though millions of consumers were negatively impacted by the pandemic, the study found that the percentage of renters with an account 60+ days delinquent remained within historical ranges, and actually dropped to 23.1% at the end of 2020 from 24.7% at the conclusion of 2019. TransUnion projects a slight rise in these delinquency levels in 2021, but they are expected to remain within historical norms.
With lockdowns in place in 2020, the report found that discretionary income, historically used towards travel, dining out and retail purchases, may have been redirected to paying down debt. This, along with other positive credit activity, has resulted in the average ResidentScore 3.0® of renters to rise seven points in 2020, closing at 668 at the end of December, while credit utilization decreased. ResidentScore 3.0® is TransUnion’s proprietary, rental industry-specific scoring model designed to predict the likelihood of future evictions and skips.
“TransUnion’s newest research allows property managers to make informed decisions at a time when information on renter financial health and the ability to pay rent are still unclear,” said Maitri Johnson, vice president of TransUnion’s tenant and employment business. “Macroeconomic indicators such as elevated unemployment would suggest a more challenging rental market, but our study points to a positive 2021 outlook. This comprehensive research will enable more trustworthy interactions between property managers and renters, benefitting the industry at a time when incomplete reports could bring forth a whole different set of challenges.”
While there is a growing concern that renters are relying on credit cards to meet their financial obligations, the study suggests that this practice is not detrimental. Even as the pandemic disrupted the daily lives of millions of consumers, renters actually reduced their overall debt levels on average by $542 (down -1.7%). TransUnion anticipates average total debt of renters to decrease by -1.0%, and credit card utilization to decrease -4.6% by the end of 2021.
Rental Market Performance Remains Strong
Key Rental Metrics
Percentage of Renters with an Account 60+ Days Delinquent
Average Total Debt Balances of Renters
*These are TransUnion’s projected delinquency rates and balances for Q4 2021.
“If renters are paying rent more frequently with credit cards, they have either greatly reduced their overall discretionary spending, or are consistently paying off their credit card debt. We have not seen a disproportionate increase in new credit card accounts being opened, so the reduction in credit card utilization is most likely not due to increased levels of available credit,” added Johnson.
What are the biggest challenges to 2021 rental growth?
The research clearly points to a positive 2021 for the rental market. However, some challenges still exist. TransUnion’s latest Financial Hardship Study from late November 2020 found that 31% of financially impacted consumers said they were concerned about their ability to pay rent. Though the percentage is lower than July 2020 peak levels of 35%, the level remains relatively high.
Another potential challenge is the elevated percentage of renters with some form of credit account in Acute Relief status (i.e. they are not currently making payments on accounts such as credit cards, auto loans, etc). From March 2020 to June 2020 the percent of renters with an account in Acute Relief status increased from 0.3% to 7.3%.
By the end of 2020, that number fell to 3.6% of renters and is projected to remain near this level into the beginning of 2021. While this metric alone should not be used to infer future renter risk, it can act as a warning sign when viewed in conjunction with other credit attributes.
“There is no doubt that many Americans, including renters, have been negatively impacted by COVID-19 either directly or indirectly. When key metrics are viewed in a vacuum, much of the information available would support a gloomy outlook for renters in the future. However, our credit metrics and studies reflect that generally renters are positioned well to exit the pandemic, but there remains a tremendous amount of unknowns at this time. Our belief is that the rental marketplace is set up for growth, even with the new development inventory coming out of the ground that will benefit both renters and property managers,” concluded Johnson.
Registration details for a March 24, 2021 webinar highlighting the findings and more information about the report can be accessed here.
About TransUnion (NYSE: TRU)
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