In the backdrop of a real estate landscape experiencing fluctuations, homebuyer affordability witnessed a decline in October, with the national median payment for purchase applicants increasing to $2,199, up from $2,155 in September.
The shift was documented by the Mortgage Bankers Association's (MBA) Purchase Applications Payment Index (PAPI), a metric that gauges the variations in monthly mortgage payments concerning income.
The rise in mortgage rates has played a pivotal role in dissuading potential buyers from entering the housing market, leading to a decrease in affordability conditions.
“Homebuyer affordability conditions declined further in October, with the jump in mortgage rates during the month dissuading would-be buyers from entering the housing market,” said Edward Seiler, MBA’s associate vice president, housing economics, and executive director, Research Institute for Housing America. “MBA expects affordability conditions to remain challenging to close out 2023 before a slight improvement by early next year.”
The PAPI serves as an indicator of borrower affordability conditions. An increase in the PAPI suggests declining affordability due to factors such as increasing loan amounts, rising mortgage rates, or a decrease in earnings. Conversely, a decrease in the PAPI indicates improved affordability conditions, often attributed to declining loan application amounts, lower mortgage rates, or rising earnings.
The national PAPI, reflecting declining affordability conditions, rose by 1.2% to 175.9 in October, up from 173.8 in September. Notably, it is now just 1.5 points away from its record high observed in May 2023. While median earnings exhibited a 3.9% increase compared to the previous year, mortgage payments recorded a 9.3% increase. However, the robust earnings growth means that the PAPI is up by 5.2% on an annual basis.
For borrowers seeking lower-payment mortgages (at the 25th percentile), the national mortgage payment increased to $1,466 in October, compared to $1,437 in September.
The Builders’ Purchase Application Payment Index (BPAPI), derived from MBA's Builder Application Survey, revealed that the median mortgage payment for purchase mortgages increased from $2,640 in September to $2,672 in October.
Additionally, MBA's national mortgage payment to rent ratio (MPRR) declined from 1.50 in the second quarter (June 2023) to 1.47 in the third quarter (September 2023), signifying a decrease in mortgage payments relative to rents. Despite the increase in the Census Bureau's Housing Vacancies Survey (HVS) national median asking rent in the second quarter of 2023, it stands at $1,462, only a slight uptick from $1,445 in the second quarter of 2023.
Affordability trends varied among different racial households, with Black, Hispanic, and white households all experiencing slight declines in affordability in October, as indicated by the national PAPI figures.
