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CoreLogic Renter Applicant Risk Index Shows a Continued Upward Trend of Renter Credit Quality

Midwest Region of the U.S. Shows Highest Renter Applicant Risk in Q1 2015

Jianjun Xie    |    Housing Trends

The CoreLogic SafeRent Renter Applicant Risk (RAR) Index indicates the credit quality of renter applicants improved nationwide year over year as of Q1 2015 (Figure 1). According to the data, the risk of default among renters nationwide decreased year over year with an index value of 108 in Q1 2015 compared to an index value of 106 in Q1 2014. The two-point year-over-year increase in the Index is a sign of improving ability to meet lease obligations among prospective apartment renters nationwide.

The RAR Index is based on applicant credit quality scores from the CoreLogic SafeRent statistical lease screening service and provides trends of national and regional credit quality scores among renter applicants. Using a mean value of 100 during the base period of 2004, a lower index value indicates a renter applicant pool with a higher average risk of not fulfilling lease obligations, while a higher index value indicates market conditions with reduced average risk of lease default. A year-over-year increase in the Index means improved renter applicant credit quality, and a decrease indicates more renters are at risk of defaulting on their lease obligations.

Figure 2 shows that the Midwest, with an Index value of 103, had the highest renter applicant risk in the country in Q1 2015, followed by the South (106), Northeast (110) and West (116). This compares to the year-over-year time period in Q1 2014 when the Midwest had a value of 102, the South was 103, and both the Northeast and West had a risk value of 112. The Midwest has had the highest renter risk (lowest Index value) every year since Q1 2012. Since Q1 2009, the Northeast and West have had the lowest renter risk among the four regions, but the West surpassed the Northeast in Q3 2014.

First Quarter Regional Renter Applicant Risk Index Since 2010

First Quarter Regional Renter Applicant Risk Index Since 2010

The RAR Index trends are in line with the latest census regional rental vacancy rates1, which show the West had the lowest vacancy rate at 5.3 percent followed by the Northeast at 5.4 percent. The South and Midwest had higher vacancy rates of 8.8 percent and 7.8 percent, respectively. At the same time, the West also had the lowest homeownership rate of 58.5 percent followed by the Northeast at 61.1 percent, the South at 65.1 percent and the Midwest at 68.6 percent. The U.S population is growing, and lower homeownership rates indicate more people are choosing to rent, resulting in lower rental vacancy rates. This leads to a competitive rental market and attracts more tenants with better credit quality. Conversely, as in the Midwest, higher homeownership results in higher rental vacancy rates, a weak rental market and a rental pool with higher default risk.

The continued reduced risk of renter default reflected in the CoreLogic RAR Index mirrors the downward trend of both homeownership and rental vacancy rates, reflecting a stronger nationwide rental market which is giving average rent prices a boost.

[1] U.S. Census Bureau News, April 28, 2015

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