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Home Affordability Up For 3rd Straight Month In August

David Krechevsky
Sep 22, 2022
Home affordability

MBA, however, says the recent stretch of modest affordability improvement likely hit a speedbump this month, as mortgage rates rose above 6%.

KEY TAKEAWAYS
  • The national median payment applied for by applicants decreased to $1,839 from $1,844 in July. 
  • The national Purchase Applications Payment Index (PAPI) decreased 0.3% to 157.9 in August, meaning payments on new mortgages take up a smaller share of a typical person’s income.

Homebuyer affordability improved for the third straight month in August, according to a report from the Mortgage Bankers Association (MBA), which added that it likely won't continue into September.

According to the MBA’s Purchase Applications Payment Index (PAPI), the national median payment applied for by applicants decreased to $1,839 from $1,844 in July. 

The index measures how new monthly mortgage payments vary across time — relative to income — using data from MBA’s Weekly Applications Survey (WAS).

“Most of the country saw modest improvements in homebuyer affordability for the third straight month because of slightly lower mortgage rates amid steady income gain growth,” said Edward Seiler, MBA’s associate vice president for housing economics and executive director of the Research Institute for Housing America. “The healthy labor market continues to be a positive for the housing market, despite ongoing economic uncertainty and high inflation.” 

He continued, “Higher mortgage rates have reduced borrowers’ purchasing power since the start of the year. The median loan amount in August was $313,500, down from a peak of $340,000 in February.” 

Seiler added, however, that “the recent stretch of modest affordability improvement likely hit a speedbump this month, as mortgage rates have jumped to around 6%.”  

An increase in MBA’s PAPI — a sign of declining borrower affordability conditions — means that the mortgage payment-to-income ratio (PIR) is higher due to increasing application loan amounts, rising mortgage rates, or a decrease in earnings, MBA said. A decrease in the PAPI — which indicates improving borrower affordability conditions — occurs when loan application amounts decrease, mortgage rates decrease, or earnings increase, it said.

The national PAPI decreased 0.3% to 157.9 in August from 158.3 in July, meaning payments on new mortgages take up a smaller share of a typical person’s income. The index has jumped 36.5% from August 2021 (115.7). For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment between July and August 2022 was unchanged at $1,210.

Additional Key Findings:

  • The national median mortgage payment was $1,839 in August, down from $1,844 in July and $1,893 in June. Monthly payments are still up by $456 in the first eight months of the year (a 33% increase).
  • Of the 50 states and Washington, D.C., 32 had lower PAPI values in August than in July. This includes six of the top 10 states with the highest PAPI values.
  • The national median mortgage payment for FHA loan applicants was $1,469 in August, up from $1,461 in July, and up from $1,009 in August 2021.
  • The national median mortgage payment for conventional loan applicants was $1,901, up from $1,892 in July, and up from $1,350 in August 2021.
  • The top five states with the highest PAPI were: Idaho (257.5), Nevada (249.4), Arizona (224.2), Utah (213.3), and California (202.4).
  • The top five states with the lowest PAPI were: Washington, D.C. (101.0), Alaska (108.2), Connecticut (108.9), Louisiana (110.5), and Oklahoma (120.1).
  • Homebuyer affordability increased slightly for Black households, with the national PAPI decreasing from 153.7 in July to 153.3 in August.
  • Homebuyer affordability increased slightly for Hispanic households, with the national PAPI decreasing from 149.6 in July to 149.2 in August.
  • Homebuyer affordability increased slightly for White households, with the national PAPI decreasing from 159.1 in July to 158.7 in August.
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