A new report from apartment aggregator RENTCafé has highlighted the growing importance of credit scores in determining access to multifamily housing. The report found that nationwide, the average renter credit score sits at 638, a steady uptick from previous years. Broken down by housing types, renters in high-end buildings averaged a 669 credit score nationwide, while renters in mid-level and low-end buildings averaged scores of 626 and 597 respectively. The report also broke down rentals by generation showing that while Baby Boomer renters have the highest average credit scores at 683, Gen Z is far and away the fastest growing, rising from an average score of 531 in 2018 to 586 in 2020.

“Undoubtedly, 2020 was a difficult year for the industry, as commercial mortgage pros faced different challenges,” said Florentina Sarac (pictured), research analyst at RENTCafé and the author of the report. “However, the fact that all generations of renters improved their credit scores can be seen as a good sign which could bring some peace of mind to commercial mortgage pros in terms of potential investments in multifamily.”

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Sarac cited the example of credit scores in Washington, DC. While Baby Boomers saw their scores improve by 13 points in a single year, up to 702, Gen Z scores rose by 44 points in 2020, reaching 657 in the space of one year. She sees the improving credit scores of renters in competitive cities like Washington as a hopeful sign for the multifamily space.

On a macro level, the space between low-end and high-end renters on a macro level appears relatively slim. Only 72 points separate the average low-end renter from the average high-end renter. However, Sarac emphasized how long it may take some people to build up those last 72 points. She also stressed that in certain key markets, such as Albuquerque, NM and Wichita, KS, the differences just between high-end and mid-level buildings are at 118 points and 116 points respectively.

For Sarac, these findings point to a few key trends commercial mortgage pros should remain aware of. The first is that the rise in the average renter’s credit score in 2020 points to a general improvement in renters’ financial situations over the past year. The second is the growing importance of credit scores to landlords and property managers as they select tenants, especially in competitive urban markets.

That rise in credit score runs somewhat contrary to other indicators of multifamily health through 2020. San Francisco, Boston, and New York topped RENTCafé’s list of cities with the highest average credit scores for renting. At the same time, these cities have all seen vacancy rates rise and rents fall in the same year. Sarac explained that in highly competitive markets like San Francisco and DC, these high credit scores are more common. She admits that her team didn’t study the correlation between this and other trends and it remains to be seen if the current economic climate will impact credit scores in future.

The report also highlighted the next great opportunity for the multifamily space: Gen Z. Sarac explained that for commercial mortgage professionals, this generation could become key players in the real estate market far faster than their Millennial predecessors did.

“This is a generation that knows what they want,” Sarac said. “Although financially they don’t yet have the spending power of Baby Boomers, they seem to be aware of this and they’re believed to be more credit active and have stronger credit scores than Millennials at the same age. It’s possible that by the end of the decade, they become key players in the real estate market, as Millennials head towards seniority.”