Real Estate

Lower Credit Usage Among Renters Signal Recovering Market: Study

TransUnion’s 2021 Rental Housing Financial Impact Study shows renters’ smart financial decisions are helping to stabilize a volatile market.

At the height of the pandemic, approximately 40 million renter households were at risk of eviction with the average tenant owing $5,400 in past due rent. Although many renters are still reeling from the events of last year, TransUnion’s latest financial impact study published on Tuesday revealed that most renters were able to stay on top of their rent payments during 2020.

Maitri Johnson

“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,” TransUnion Vice President of Multifamily Maitri Johnson said in a statement. “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,” Johnson added.

Based on four years of renter and property data, the report revealed 60-day delinquency rates declined 1.6 percent from December 2019 to December 2020, with the average renter’s total debt balance dropping from $31,113 to $30,592 during the same time period. The delinquency rate rose slightly from the fourth quarter of 2020 to Q1 2021 (+0.9 percent), but TransUnion expects the rate to “remain within historical norms.”

To compensate, renters diverted discretional income toward necessities, such as rent or debt repayment. These moves pushed renters’ average credit scores up seven points to 668 — a trend the report said will continue into 2021 as renters reduce their credit card usage (-4.6 percent).

“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,” Johnson said. “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.”

The report said renters’ credit usage trends suggest a stronger rental market in 2021, even as 31 percent of renters reported worrying about their ability to pay. Much like 2020, the report said renters are continuing to tighten their budgets and take advantage of loan deferral or forbearance plans (3.6 percent) in order to cover housing needs.

Although those statistics are concerning, Johnson said the usage of deferral or forbearance plans has dropped from its pandemic high (7.3 percent), signaling that renters’ financial outlooks are improving.

“There is no doubt that many Americans, including renters, have been negatively impacted by COVID-19 either directly or indirectly,” Johnson said. “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,” Johnson concluded. “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.”

Email Marian McPherson

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