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While year-over-year apartment rents continue to rise in metro Phoenix, the credit scores of renters are dropping.

Renters in Phoenix have an average credit score of 613 in 2020, down from 619 in 2019 and 617 in 2018, according to a new study from RentCafé.

Looking at the score by building type, Phoenix renters in high-end apartments have an average score of 651 — the highest in the state, according to the study. The credit score of renters in mid-level units is the lowest in Arizona for this type, at 595, while the average of those in low-end units is 585.

The minor dip in the average credit scores among renters most likely was a function of the economic stress and volatility caused by the coronavirus pandemic, said Peter O’Neil, research director for NorthMarq.

“Two of the biggest factors that influence credit scores are payment history and level of debt,” O’Neil said. “We experienced an unprecedented pace of job cuts — nationally and in Phoenix — during the spring, and while the labor market is rounding back into form, some job loses are still lingering.”

Doug Ressler, business intelligence manager at Yardi Matrix, a sister company to RentCafé, said employment drives credit scores.

“Phoenix’s resilience helped it occupy a high spot among the nation’s top 10 best performing metros during the health crisis, having lost fewer jobs than most,” Ressler said. “In addition, Phoenix has recovered 85% of the initial first quarter job loss caused by the pandemic.”

Phoenix employment growth in the 12 months ending in September marked a -4.2% decline, well below the -9.3% national level, he said. The unemployment rate slid to 6.2% in September, following a spike in the number of virus cases in mid-summer.

Preliminary data in October pointed to an increase to 7.5%, he said.

“Two sectors added jobs in the year ending in September, including the metro’s largest — trade, transportation and utilities — which expanded 2.6%,” Ressler said. “The sector benefited from its ability to adapt to the current situation and from Amazon’s planned expansion, which was projected to bring 3,000 new jobs ahead of the holiday season.”

A new report from ApartmentData.com shows a 12-month rental rate growth of 5.7%, as of Jan. 31.

That ApartmentData report also found that average rental rates are $1,200 a month, which translates to $1.41 per square foot.

These rising apartment rents and dropping credit scores come at a time when the federal Consolidated Appropriations Act of 2021 is providing millions of dollars in funding to launch rental assistance programs across the state.

For example, the Arizona Department of Economic Security received $492 million to launch an emergency rental assistance program to provide assistance and housing stability in rural counties, while larger counties like Maricopa County will get direct funding from the U.S. Department of Treasury. Maricopa County is getting $46.21 million, while the city of Phoenix will get $51.15 million.

“It’s pretty natural for people who lost their jobs to have had some difficulties keeping all their payments current,” O’Neil said. “And while overall savings rates have increased nationally — in part because many of us have reduced our consumption because we’ve been stuck at home — those that lost jobs, or had hours or earnings cut, easily could’ve taken on some short-term debt to make it through the tough times.”

Publication: Phoenix Business Journal

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