Risk levels of rental applicants improving, but property managers still face challenges

TransUnion’s ResidentScore predicts level of risk for renters

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Risk levels of renters continued to improve at the beginning of 2018, especially in cities where jobs are strong and rental prices remain affordable. These findings from TransUnion (NYSE: TRU) Rental Screening Solutions were released today at the National Apartment Association’s 2018 Apartmentalize conference in San Diego.

TransUnion’s new analysis examined current and prospective renters across the top 50 U.S. MSA (Metropolitan Statistical Area), comparing Q1 2018 to Q1 2017. According to TransUnion’s ResidentScore, 34 percent of renters now have scores of 720 or higher as of Q1 2018. Just one year earlier, 32 percent of renters had such scores. ResidentScore is TransUnion’s rental housing-specific score, which uses credit attributes to predict the likelihood a renter will be evicted or “skip” out of their rental unit without paying within 12 months. The score ranges from 350-850 with a higher score indicating a lower expected risk of eviction or skip.

“Strong local economies coupled with low unemployment rates are likely driving the improvement in the average ResidentScore,” said Mike Doherty, senior vice president in TransUnion’s rental screening business. “This is positive news for renters as fewer applicants are likely to be declined or be subject to higher deposits. For property management companies, this is a major plus as the likelihood of evictions, which can cost thousands of dollars, drops precipitously when renters have a higher ResidentScore.”

ResidentScore Distribution
ResidentScore Percentage of Renters

Q1 2017

Percentage of Renters

Q1 2018

720+ 32% 34%
700-719 4% 4%
680-699 3% 3%
660-679 12% 13%
640-659 3% 3%
620-639 4% 4%
600-619 8% 8%
580-599 11% 9%
560-579 12% 11%
540-559 5% 5%
< 540 6% 5%

 

ResidentScore distribution improved in the three largest MSAs. In New York, the percentage of renters with a ResidentScore of 720+ increased to 42 percent in Q1 2018 from 40 percent in Q1 2017.  The percentage also increased in the same timeframe for Los Angeles (to 36 percent from 34 percent) and Chicago (to 33 percent from 31 percent).

While more renters are performing better from a risk perspective, property management companies still face challenges. Only 6 percent of the rental population sampled in this study had a ResidentScore of below 540. Yet, nearly 42 percent of those sampled in this study that scored below 540 at lease signing were evicted or skipped out on the lease after 15 months. When projected across the entire renter population, this represents approximately two billion dollars in balances left owed. On average, renters that skip out on a rental unit owe their property manager $4,215.

“When property management companies are steady on their accept or decline criteria, they are declining fewer applicants and the population they are accepting is expected to perform better,” Doherty added. “Yet, some property management companies should still consider tightening their criteria because it’s clear that applicants with low ResidentScores are far more likely to skip out on a lease or be evicted, causing major losses to property managers.”

Rental Credit Performance as of March 2018 for Renters that Started Leases in 2016
ResidentScore Cumulative Evictions & Skips at 15 Months
720+ 1.1%
700-719 1.8%
680-699 2.0%
660-679 2.2%
640-659 3.0%
620-639 4.6%
600-619 7.4%
580-599 13.8%
560-579 17.7%
540-559 24.9%
< 540 41.9%

 

“This analysis is especially important as ResidentScores paint a more complete picture for property management companies and can help them attract higher quality residents,” concluded Doherty.

The study examined more than 500,000 move-ins and payment performance over a 15 month-period as reported by property managers.


About TransUnion

Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and renters to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.