Renters Managing Debt Responsibly Despite Rising Financial Hardship
TransUnion analysis highlights underlying strength of the rental market
The COVID-19 pandemic continues to demonstrate a broad impact on consumer finances with a new TransUnion (NYSE: TRU) analysis highlighting its effect on the rental market. The percentage of renters that entered “Acute Relief” programs between the months of March and April increased 25% month-over-month in the wake of COVID-19. However, enrollment in such programs enabled consumers to maintain good financial standing on current accounts until they attain more financial stability.
The Acute Relief metric is defined as a tradeline in forbearance, deferment or payment suspension due to the impacts of a natural disaster. These resources allow consumers to suspend payments with a lender for various credit obligations, and can offer consumers much needed payment flexibility during periods of financial uncertainty. For property managers and operators, this metric may also serve as an early indicator of future financial hardship during prolonged unfavorable market conditions.
The analysis found that renters are being prudent with new credit borrowing and are not taking on new forms of debt as a response to COVID-19. The percentage of renters that opened a new tradeline in the past six months decreased from 37.8% in March to 36.7% in April and only slightly increased when compared to April 2019 (0.9% year-over-year).
“Forbearance and deferment programs have given renters a leg-up during this unexpected economic downturn – and it appears many renters have reduced their immediate debt obligations in the near-term,” said Maitri Johnson, vice president of TransUnion’s tenant & employment business. “COVID-19 has had a significant effect on the financial health and stability of the renter population. As this situation and the economic landscape continues to evolve, early financial hardship indicators can help property owners and operators better understand consumers and make more informed decisions regarding their portfolio.”
Despite the economic pressures a majority of renters are facing, credit card utilization rates have been decreasing month-over-month across the entire portfolio. At the end of 2019 the average renter was utilizing 45.3% of their available credit line(s). As of the end of April, utilization rates fell to 39.8%, representing a 13.7% decrease year to date.
Utilization of Open Credit Cards for Renters is Declining
Dec – 2019
Jan – 2020
Feb – 2020
Mar – 2020
Apr – 2020
This decrease in credit card usage demonstrates renters are actively controlling balances across all credit obligations and suggests they are avoiding placing rent payments on their credit cards. TransUnion’s April Monthly Industry Snapshot Report found that consumers are paying down their credit card balances to ensure further liquidity – with the average balance per consumer decreasing from $5,645 to $5,437 between March and April 2020.
These measures show renters have been managing their debt responsibly and rent payments have not yet been materially impacted. The number of consumers continuing to pay rent is largely on par with 2019, with rent payments being made at a slightly lower level versus prior years — a 3.1% drop from 97.7% to 94.6% year-over-year between April 2019 and April 2020. While consumers have continued to pay rent thus far, that does not necessarily mean there are not concerns about the continued ability to do so. The most recent TransUnion Financial Hardship Survey indicated that 30% of consumers whose income has been impacted by COVID-19 expressed concerns about their future ability to pay rent.
“Right now there is little indication that renters are increasing their debt or taking on new lines of credit. The presence of federal stimulus packages have offered temporary relief for many consumers, but it is yet to be determined whether this is merely postponing payment risk increases for renters. If renters are placed under greater financial strain in the coming months, property managers should take a deeper dive on resident behaviors to better forecast the likelihood of future rent payments while actively building trust with their community,” said Johnson.
For more information on TransUnion’s Rental Housing Financial Impact Study, please register for the upcoming webinar. To learn more about resident insights, demographics and behaviors, please visit https://www.transunion.com/product/residentvision.
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