As federal and state pandemic programs come to an end, renters are more at risk than homeowners of falling—and being left behind—as the economy begins to recover.
According to a report released by the Consumer Financial Protection Bureau (CFPB), a government agency that covers all financial entities in the country, warned that renters who felt relief from the various COVID-19 programs, such as stimulus payments and enhanced unemployment, will be at the highest risk of facing future financial instability.
“Before the COVID-19 pandemic, economic conditions among some renters appeared to be improving,” the report said. “Between 2016 and 2019, median incomes and median net worth among renters grew 6% and 18% respectively. And between 2011 and 2018, the share of renters paying more than 30% of their incomes in rent declined from 50.7% to 47.5%.”
But the pandemic stalled those gains until the emergency programs were put in place. During the time the emergency programs were running, the average renters credit score increased by 16 points while homeowners only increased by 10 points.
According to the study, 68% of respondents own their home, 27% rent and 5% neither rent nor own.
Breaking down the demographics, 53.1% of renters were white, 25.1% were Black, 14.5% were Hispanic, and 7.3% were another race. On the other hand, 74.0% of homeowners were white, 8.8% were Black, 8.9% were Hispanic, and 8.4% were other.
Renters were found to be younger than their homeowning counterparts. They were also found to more likely be women, have no post-secondary education, and make less money annually.
“Compared to homeowners, renters are more likely to be Black or Hispanic, are younger, and have lower incomes,” the study said. “Prior to the pandemic, average credit scores among renters were 86 points lower than those of homeowners with a mortgage, and 106 points lower than those homeowners who reported paying no mortgage.”
“As government pandemic financial supports end, renters are in danger of falling further behind the broader national recovery,” said the CPFB in a press release. “Renters represent over 30% of U.S. households, and their welfare is critical to the welfare of the larger economy and the communities in which we live. As part of its work to support an equitable economic recovery, the CFPB has reminded credit reporting agencies and furnishers of their obligations to report rent payments and evictions accurately. Accurate reporting is now even more essential with the new mortgage underwriting process announced by Fannie Mae last week, which will add rental payments to the evaluation process for mortgage qualification and approval. The CFPB will use today’s report to inform how best to support an equitable recovery for renters and all Americans.”
The study used data from 2,990 respondents from the Making Ends Meet survey conducted in 2019 and 2020. The study also used data from their credit reports and asked separate questions about demographics, education, gender, and income—data which is not available in credit reports.