Recession Causes Credit Quality of Rental Applicants to Improve
- Apr 29, 2009
By Anuradha Kher, Online News EditorRockville, Md.–The credit quality of rental applicants to multifamily homes has gone up as a result of the recession, according to the Multifamily Applicant Risk Index (MAR Index) released by First Advantage SafeRent Inc. The first quarter national MAR Index, including studios, one-, two-, three- and four-bedroom units, was 100, which is a 1-point increase from the fourth quarter 2008, indicating a slightly better applicant pool this quarter.“Some of the weakest applicants have left the market due to unemployment,” Jay Harris, vice president of business services, tells MHN. “Some of those who had bad credit scores a year back and are now unemployed have either gone back to live with parents or are not moving at all.”According to the Census Bureau, in 2008, renters were five times more likely to move than homeowners. More than one-in-four people (27.7 percent) living in renter-occupied housing units lived in a different residence one year earlier. By comparison, the mover rate of people living in owner-occupied housing units was 5.4 percent.“The recession has not had a negative impact on the quality of applicants; the bigger issue is the decline in volumes,” says Harris. “In fact, we do not anticipate a fall off in the MAR Index in the coming months.”Compared to the first quarter of 2008, the MAR Index is the same value of 100 which confirms a trend of seeing lower MAR Index values during the slow applicant traffic volume periods of the first and fourth quarters. When comparing applicants for one- versus two-bedroom units, the MAR Index is slightly higher for one-bedroom units at 101 compared to 100 for two-bedroom units in the first quarter.With the MAR Index, property managers and owners can compare their applicant credit quality trends with that of the average MAR Index trends. This comparison indicates whether their portfolio is performing above, below or at market levels with respect to attracting and securing applicants with higher credit quality and an increased likelihood of fulfilling their lease.Harris says there is a clear trend of property owners lowering the criteria of credit quality in response to the reduced volume of applications.