From Recession to Boom Times: Renter Profile Shifts
New TransUnion study finds today’s renters open more credit cards and auto loans, but do not appear materially constrained by increased rental prices
Despite steep increases in rental prices, renters are less financially constrained today than they were just after the last recession, according to a new TransUnion (NYSE:TRU) study. The study confirmed that, on average, renters at the mid-point of 2016 were lower risk and more credit active than renters were in 2010.
TransUnion analyzed the credit behavior of 775,000 renters who moved in Q2 2009, and 631,000 renters who moved in Q2 2015, over the 12-month period post-move. TransUnion found that 38.6% of the 2015 renters had a prime or better credit score (VantageScore® 3.0 score of 660 or above) in 2015, compared to 26.2% of the 2009 cohort of renters.
Comparing renters from the immediate post-recession period to renters of today highlighted an interesting dynamic. While renters in 2009 were facing a difficult economic environment, renters today also face challenges because of rising rental prices. Yet significant economic changes have occurred between 2009 and 2016, with a net overall benefit to renters. Today’s renters are generally lower risk and more credit active in the 12 months following their move, taking on more auto loans and credit cards than previous renter cohorts.
Credit Score Distribution of Renters at Move-In Date in 2009 and 2015
780 and above
721 - 780
661 - 720
601 - 660
300 - 600
Between 2009 and 2016, the percentage of renters who opened a new card in the 12 months after move-in doubled. The study found that 28.7% of the 2015 renter cohort opened a new credit card by mid-2016, while only 12.4% of the 2009 cohort had a new credit card account by mid-year 2010. Auto loan originations also rose for renters by mid-year 2016, with 17.2% opening an auto loan within 12 months after move-in, compared to 9% of 2009 renters.
In addition, renters have generally become older since 2009, with significant changes observed for the youngest and oldest consumer groups. In 2009, 22.6% of renters were younger than 25; by 2015, the youngest age group had declined to just 20.3% of all renters. Renters ages 45 and older were 23.5% of the renter population in 2009, but grew to 31.3% by 2015.
Following the Recession, younger consumers may have been underemployed or have chosen to live at home with their parents. Older consumers may have opted to stay in a rental unit instead of purchasing a home. The good news for property managers is that renters of all ages are managing their credit obligations well. Property managers can help renters build their credit history by reporting rental payments to the credit bureaus, giving renters the credit they deserve for on-time payments.
Using Aggregate Excess Payment to Understand Rental Affordability
To determine how renters are impacted after a move, TransUnion used its CreditVision® aggregate excess payment (“AEP”) algorithm, which incorporates monthly payments from mortgages, credit cards and other debt obligations. A consumer with a positive AEP could take on new payments and has money available after their monthly minimum payments are made.
In 2009, 53% of renters had an AEP greater than $100. By 2015, the percentage of renters with an AEP of $100 or more grew to 59%.
“Our findings indicate that we are not on the cusp of rental affordability issues, as the vast majority of renters do have some excess liquidity once their monthly debt service obligations are met,” said Doherty. “In fact, more than half of renters have an AEP greater than $100, a promising sign for property managers. Property managers should consider several factors, such as credit history and rental payments, to gain more insights into the consumer wallet as part of their screening process.”
For more information on TransUnion’s solutions for property managers, please visit http://www.transunion.com/industry/property-management.
About TransUnion (NYSE: TRU)
Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.
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