Risk Index Trend Remains Fairly Stable; Number of Applicants Decreases

By Erika Schnitzer, Associate EditorRockville, Md.—The fourth quarter of 2008 had a more risky applicant pool than the previous quarter, according to First Advantage SafeRent’s fourth quarter 2008 Multifamily Applicant Risk (MAR) Index. The MAR Index is based on traffic credit quality scores from First Advantage SafeRent’s statistical screening model and is updated quarterly. A lower score indicates applicants with a higher risk of unfulfilled lease obligations. Despite the economic downturn, a more risky applicant pool in the fourth quarter is normal, explains Jay Harris, vice president, business services, First Advantage SafeRent. Generally speaking, he says, “We see that there are more applicants coming in [the first quarter] than in the fourth quarter, and they are better qualified.”The fourth quarter national MAR Index, which included studios, one-, two-, three- and four-bedroom units, was 99—the same as the fourth quarter of 2007—reflecting a one-point decrease from the first quarter 2008. However, the Index is down five points from the third quarter 2008 value of 104. A MAR Index value of 100 indicates that market conditions are equal to the national mean for the index’s base period of 2004. A MAR Index value greater than 100 indicates market conditions with reduced average risk of default, relative to the index’s base period mean. A value less than 100 indicates market conditions with increased average risk of default relative to the index’s base period mean.“In the fourth quarter, the numbers hold up fairly well. There are some significant differences by region, but generally, the quality of applicants held up and I think what we will anticipate heading into 2009, as more of the job loss data shows up, is the numbers may fall off slightly over the course of the year,” Harris tells MHN.When comparing applicants for one- versus two-bedroom units, the MAR Index is slightly higher for one-bedroom units at 100, compared to 99 for two-bedroom units in the fourth quarter.
Regionally, the Northeast continues to have the highest MAR Index, with a value of 110. The South had the lowest MAR Index, with a value of 96. The West and Midwest had values of 105 and 97, respectively.“The Northwest and West tend to have better-qualified applicants,” notes Harris. With higher housing costs in areas such as California and New York, “people tend to rent longer and have longer positive experiences renting.”
In terms of the Metropolitan Statistical Areas (MSA), Atlanta; Charlotte-Gastonia-Rock Hill, NC-SC; and Dallas-Fort Worth, TX had the leading decreases in the MAR Index, with decreases of 4, 5 and 5 points, respectively. Chicago-Gary-Kenosha, IL-IN-WI; Cleveland-Akron, OH; and Kansas City, MO-KS had the leading increases, with 3 points each.  In addition, Harris notes that 2008 showed a decline in applicant volume. “We see the slowdown in the economy taking hold as people are less confident about their job prospects,” he says. In a year-over-year analysis, applicants in 2008 were down 7.8 percent, as compared to 2007. Class A properties saw a 7.2 percent decline, while Class C properties saw an 8.1 percent decrease in applications.“Typically in the first quarter, the average quality increases, compared to fourth quarters, but we are running into pretty strong headwind with layoff notices so we may not see any increase in the quarter ahead,” Harris warns. “We anticipate that in ’09, looking ahead, the second quarter will have higher numbers, as it usually does, but we think the numbers may be off from ’07 and ’08, with what we know about job loss already and what we anticipate going on in the economy,” he predicts.