[IMGCAP(1)]WASHINGTON, DC-Despite the issues facing the housing sector, they aren’t significantly impacting the apartment market. Until now, and looking ahead to the near term, the multifamily segment has remained somewhat insulated from the financial distress of the single-family market, since former homeowners aren’t flocking in record numbers to rentals. And with households remaining in the rental pool, the credit quality of rental applicants has remained strong.

According to a study on the topic–conducted by Bruce Innes of Innes Works Consulting on behalf of the National Multi Housing Council–former homeowners account for just 2% to 6% of all apartment applicants. “Much has been made about the flood of former house owners into apartments, but we are not seeing that,” says NMHC president Doug Bibby. “Instead, the primary effect the housing downturn is having on the apartment sector is a dramatic slowdown in the number of renters leaving to become owners.”In an effort to examine whether the overall quality of multifamily applicants has declined due to the growing number of households that experience foreclosures or other kinds of mortgage stress, the study found just 5.4% of rental applicants had a record of being 90 days or more past due on their mortgages.

This bodes well for the industry, says Bibby. “Apartment firms have an economic incentive to accept as many applicants as possible, and this shows that firms are using a variety of techniques to manage the risks associated with rental applicants with foreclosures,” he notes. Among those techniques, he adds, is the adoption of automated risk-based screening programs. “But many firms are also finding ways to accept applicants with mortgage stress and protect the properties’ net operating incomes, such as requiring additional deposits. These approaches are working.”

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