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NMHC Study Suggests Foreclosure Crisis Will Not Threaten Financial Health of Apartment Sector
Published: July 24, 2008
By Anuradha Kher, Online News Editor
Washington, D.C.--Homeowners of foreclosed properties have not been flocking to the apartment sector, according to new research by the National Multi Housing Council (NMHC). As a result, the credit quality of prospective renters is holding steady, suggesting that the foreclosure crisis is not spilling over to threaten the financial health of the apartment sector, the study reveals.
Conducted by Bruce Innes of Innes Works Consulting and presented in a new NMHC white paper titled Renter Credit Quality in a Volatile Housing Market, the report finds that evicted house owners represent only between two and six percent of apartment applicants.
“Much has been made about the flood of former homeowners into apartments, but we are not seeing that,” says Doug Bibby, NMHC president. “Instead, the primary effect the housing downturn is having on the apartment sector is a dramatic slowdown in the number of renters leaving to become owners. This, in turn, is raising the credit quality of rental applicants and helping insulate the apartment sector from the financial woes the single-family sector is currently experiencing.”
The report examines whether the overall quality of apartment applicants has declined because of the increasing number of households with some kind of “mortgage stress” in their credit history and finds that only 5.4 percent of rental applicants had a record of being 90 days or more past due on their home loan or in default on their mortgage.
“Apartment firms have an economic incentive to accept as many applicants as possible, and this research shows that firms are using a variety of techniques to manage the risks associated with rental applicants with foreclosures,” notes Bibby. “The widespread adoption of automated risk-based screening programs in recent years is key among those. But many firms are also finding ways to accept applicants with mortgage stress and protect the properties’ net operating incomes, such as requiring additional deposits.”
“These approaches are working,” explains Bibby. “Data from several industry sources indicates that 85 to 92 percent of those seeking to rent an apartment are accepted. In addition, the research finds that bad debt ratios remain basically unchanged, indicating that renter defaults have not increased.”
