Homebuyer Affordability Doesn't Budge In December

Homebuyer affordability remained flat in December as the national median mortgage payment applied for by purchase applicants declined just $6 to $2,127 — the same level they were at in October — from $2,133 in November.

That payment is $72 higher than a year earlier, however, marking a 3.5% annual increase, per the latest figures from the Mortgage Bankers Association (MBA), which tracks changes in borrowers’ payment-to-income ratios through its Purchase Applications Payment Index (PAPI). 

At $1,866 last month, the national median mortgage payment for FHA loan applicants was $32 less than November's (-1.68%), but $44 higher than a year ago (+2.4%). The national median mortgage payment for conventional loan applicants was $2,128, down $5 from November (-0.23%), but up $75 from a year ago (+3.65%).

An increase in MBA’s PAPI indicates declining borrower affordability conditions, meaning that the mortgage payment to income ratio (PIR) is higher due to increasing application loan amounts, rising mortgage rates, or a decrease in earnings.

No help for housing finance or hard-to-qualify homebuyers emerged from the Federal Reserve's decision yesterday to pause on further interest rate easing, after a string of consecutive months of cuts lowered the central bank's benchmark borrowing rate by 100 basis points since September.

The nominal month-over-month change in December was “the result of somewhat volatile mortgage rate movements and moderating home-price growth,” said Edward Seiler, MBA’s Associate Vice President, Housing Economics, and Executive Director, Research Institute for Housing America.

Typical mortgage payments, including property taxes and skyrocketing insurance costs, continue to eat up larger portions of monthly incomes, making it difficult for younger, first-time homebuyers to access the market, particularly given the lack of affordable, entry-level homes.

The MBA reports that median earnings rose 4.1% compared to one year ago, and while payments increased 3.5%, the significant earnings growth means that the PAPI is down 0.6 % on an annual basis. For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment increased to $1,446 in December from $1,436 in November.

Existing homes sold in 2024 at their slowest pace since the mid-1990s. With mortgage rates projected to end 2025 in the mid-6% range, and 2026 in the low-6% range, economists anticipate housing activity this year to mirror that of the past two.

Seiler calls 2024 "a sluggish year for home sales" due to the nation's widespread affordability challenges. He adds “[The] MBA expects 2025 conditions will improve as housing supply increases, giving prospective buyers more options and putting less pressure on their budgets.”

Be that as it may, as inventory rises, more homes are sitting on the market longer. Sellers have remained stiff-lipped in demanding high prices, leading to a pileup of for-sale listings, especially in states like Florida and Texas.

The top five states with the highest PAPI — the worst housing affordability from the perspective of payment-to-income ratios — were: Idaho (249.5), Nevada (249.0), Arizona (230.3), Rhode Island (206.3), and Florida (205.8).

The top five states with the lowest PAPI — the best housing affordability from the perspective of payment-to-income ratios — were: Connecticut (115.2), Alaska (117.3), Louisiana (118.9), D.C (121.3), and Vermont (122.1).

The Builders’ Purchase Application Payment Index (BPAPI) showed that the median mortgage payment for purchase mortgages from MBA’s Builder Application Survey increased to $2,500 in December, up from $2,481 in November.