Rental Applicant Credit Risk Declines For Fifth Straight Year

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The rental applicant credit risk has declined for the fifth straight year which “indicates a decline in tenant risk, which could suggest the rental market will see an uptick in profitable lease activity,” according to a new report from CoreLogic.

The 2019 Rental Applicant Risk (RAR) Report found the credit quality of prospective property renters in the U.S. improved over the past five years across the Northeast, West, South and Midwest regions.

The annual report provides a benchmark of national and regional applicant traffic credit quality scores and indicates the relative risk of an applicant pool fulfilling lease obligations.

“It’s encouraging to see an increase in qualified rental applicants over the previous five years, which could indicate continued improvement of economic health,” Dr. Ralph McLaughlin, deputy chief economist for CoreLogic, said in a release about the report.

“Rents have since rebounded from the Great Recession and are now growing at the same pace as house prices.

“However, it’s important to note that these rising rents might be causing Middle Rent applicants to apply for Low Rent properties, which can indicate that a subset of the population now is becoming priced out of the traditional rental market,” McLaughlin said in the release.

Rental Applicant Credit Risk Declines For Fifth Straight Year

Key points from the rental applicant credit risk report

  • From 2017 to 2018, the national rental application risk index declined two points to 83.
  • The report finds that credit quality of prospective renters in the Northeast, South, West and Midwest regions has improved over the past five years.
  • Renter income for low rent properties rose 4.7%, but remained flat for middle and high rent properties from 2017 to 2018.
  • The average rent price for low rent properties remained flat from 2017 to 2018 at $675, whereas it increased 0.7% for middle rent properties at $899 and 0.26% for high rent properties at $1,524.

The report says rent-to-income levels decreased for renters of the least expensive rentals, indicating more available capital for those applicants. Incomes rose 4.7% for applicants of Low Rent properties  (under $750 per month), while income of applicants of Middle Rent properties (between $750 to $1,100 per month) and High Rent properties (over $1,100 per month) remained flat from 2017 to 2018.

The West has a lower rental applicant credit risk

Rental Applicant Credit Risk Declines For Fifth Straight Year

 Regionally, the West is below average in rental applicant risk, while the Northeast, South and Midwest are above average compared to the U.S. index value of 83.

The West had the lowest index value at 73, indicating a higher potential for positive lease performance in the region. The Northeast is the second least risky region, with a value of 85. The South and Midwest regions show higher index scores and thus illustrate lower credit quality among prospective renters.

Methodology:

The Index is calculated exclusively from applicant-traffic credit quality scores from the CoreLogic SafeRent® statistical lease scoring model, Registry ScorePLUS®. Registry ScorePLUS® is the multifamily industry’s only screening model that is both empirically derived and statistically validated.

CoreLogic RAR Index Methodology The CoreLogic® Renter Applicant Risk (RAR) Report is published annually by CoreLogic. The RAR Index is calculated exclusively from applicant-traffic credit quality scores from the CoreLogic SafeRent® statistical lease scoring model, Registry ScorePLUS® , and is based on an analysis of 31,000 properties representing apartment homes and single-family rentals.

Rental Applicant Credit Risk Declines For Fifth Straight Year

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