TransUnion Says Renters Less Risky As Rents Rise

While average rent prices have increased nationally, renters’ credit risk has shown signs of improvement in the past year.

Chicago—Information and risk management company TransUnion has released its latest Rental Screening Solutions industry report that found that while average rent prices have increased nationally, renters’ credit risk has improved in the past year.

“The rental market continues to be strong as demand for rental units remains high while consumer credit risk slowly improves,” says Michael Doherty, senior vice president of TransUnion’s rental screening solutions group. “The combination of improving rental risk scores and continued demand for rental properties is particularly good news for property managers.”

TransUnion garnered data from its rental screening solutions survey which it collected from property managers from the same properties in September 2012 and September 2013.

According to the study, average national rent prices rose 4 percent from the third quarter of 2012 to the same time in 2013 for properties categorized in a range consisting of Levels A through D.  Level A properties were described by TransUnion to be newer, institutional properties, while Level D properties were described as those in older, less desirable areas and in need of renovations or updating.

Level D properties represented the largest swing in rent changes, rising 4.2 percent from an average rent of $665 in Q3 2012 to $693.  The Level C group had the smallest change in rent prices at 2.1 percent, or $843 in 2012 up to $860 for the same time the following year. The credit risk associated with renters of renters at the Level C and D properties posted improvements of 1.3 and 1.7 percent, respectively, while renters in Level A rose 0.9 percent and those in Level B properties edged up 0.3 percent.

“As property managers determine the criteria for what types of residents they want for their properties, it is valuable to have a basic understanding about the risk level of the rental population,” Doherty says. “When the credit risk of the population improves, property managers may be more inclined to tighten their criteria to ensure they are getting the best possible resident. This is integral because a resident who ‘skips’ out on a lease can cost a property manager thousands of dollars in lost revenues.”

The study also noted trends in the regional markets of Chicago, Los Angeles and New York, but said that the data for those markets still reflected data for the national numbers. Chicago and New York’s average rental costs increased by 5 and 5.5 percent, respectively, while rent for Angelenos increased an average of 3.2 percent. Credit risk improved in Los Angeles by 1.1 percent and New York by 0.4 percent. Chicago renters’ credit risk remained the same year-over-year.

“We noticed that the improvements in credit risk and the rise in rental payments was not a regional trend, rather most markets experienced similar improvements,” Doherty adds.