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Rental Property Default Risk Dips

The researchers at RealtyTrac say the average Default Risk Score (DRS) for single-family rental homes declined by almost 16% in six months, dropping from 43.6 to 36.7 in the nation’s 100 largest counties based on property count. The drop is in part related to improving unemployment rates, say company representatives.

The RealtyTrac Rental Property Risk Report gauges the relative default risk, using a scale of 1-100, of single-family rental homes. Almost 90% of of these properties are owned by small-scale investors who own fewer than 10 properties, and many of them carry a mortgage, according to the RealtyTrac team.

In addition to looking at the risk score for all 100 counties, the report identifies the counties with above-average default risk. According to the research, the ratio of counties at above-average default risk also declined, but almost half of all counties are still at elevated risk levels, with 45% having an above-average DRS compared with 53% six months ago.

New York County in New York was the most at-risk with a score of 73.7 compared with the previously top-ranked Mohave County in Arizona which had a score of 77.2 in February 2021. Salt Lake County in Utah maintained its position as the lowest-risk county with a score of 6.9, a decline from its previous score of 17.2.

“We’re seeing a decrease in the RealtyTrac Default Risk Score due to declining unemployment rates, one of the three criteria we analyze for our score,” said RealtyTrac EVP Rick Sharga. “But even with the decrease, the risk for default among these rental property owners is still very real, especially in California and Florida."

The researchers shared the 10 most at-risk counties, based on data from ATTOM, parent company to RealtyTrac.

Ten Highest At-Risk Rental Markets of the 100 Largest U.S. Counties

County

State

% SFR
Properties

LTV
Ratio

Unemployment
Rate

Risk
Score

New York

New York

45%

53%

7.5%

73.7

Horry

S. Carolina

50%

55%

4.5%

66.3

Kern

California

45%

42%

10.1%

66.0

Montgomery

Ohio

39%

57%

5.7%

64.2

Lee

Florida

47%

46%

4.6%

56.8

San Bernardino

California

40%

38%

7.3%

56.4

Riverside

California

39%

39%

7.2%

55.7

Marion

Florida

42%

43%

5.3%

54.8

Pierce

Washington

39%

41%

5.8%

51.9

Hidalgo

Texas

32%

44%

9.7%

51.7

Source: ATTOM Data Solutions, Bureau of Labor Statistics, RealtyTrac analysis

Generally speaking, the researchers say counties with a high percentage of rental properties, high unemployment rates, and high LTV ratios had a higher risk score.

Local National Association of Realtor (NAR) chapters last week were unsuccessful in efforts to vacate a federal eviction moratorium that the Biden Administration and Center for Disease Control (CDC) extended through October 3 (DS News has reported multiple extensions in about 18 month since its inception). NAR representatives say small-scale landlords are suffering financially due to the ban.

“About half of all housing providers are mom-and-pop operators, and without rental income, they cannot pay their own bills or maintain their properties,” says NAR President Charlie Oppler. “NAR has always advocated the best solution for all parties was rental assistance paid directly to housing providers to cover the rent and utilities of any vulnerable tenants during the pandemic. No housing provider wants to evict a tenant and considers it only as a last resort.”

RealtyTrac's Sharga says that with improving jobs numbers, it "makes sense to see a lower default risk for rental property owners. But many landlords still need financial relief after the government’s 18-month eviction ban, so it’s critical for state governments to begin distributing the $45 billion that has been set aside to cover missed rent payments for tenants whose income was impacted by the pandemic.”

The CFPB recently announced it will offer a tool to help landlords and tenants—about 3.6 million of whom the bureau says reported "somewhat or very likely" eviction within the next two months—to access billions of government dollars allocated to assist households unable to pay rent, utilities, and other housing costs.

DS News reported earlier this week that single-family rents went up five fold in the past year.

 

Investors in build-to-rent communities and homes, as well as all single-family rental investors, are encouraged to attend this fall's Single-Family Rental and Investment Roundtable, part of 2021 Five Star Conference and Expo, September 19-21 at the Hyatt Regency Hotel in Dallas, Texas. 

About Author: Christina Hughes Babb

Christina Hughes Babb is a reporter for DS News and MReport. A graduate of Southern Methodist University, she has been a reporter, editor, and publisher in the Dallas area for more than 15 years. During her 10 years at Advocate Media and Dallas Magazine, she published thousands of articles covering local politics, real estate, development, crime, the arts, entertainment, and human interest, among other topics. She has won two national Mayborn School of Journalism Ten Spurs awards for nonfiction, and has penned pieces for Texas Monthly, Salon.com, Dallas Observer, Edible, and the Dallas Morning News, among others. Contact Christina at christina.hughesbabb@thefivestar.com.
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