Homebuyer affordability saw a welcome boost in December as the national median payment applied for by purchase applicants decreased from $2,137 in November to $2,055, according to the Mortgage Bankers Association's (MBA) Purchase Applications Payment Index (PAPI).
The so-called PAPI assesses how new monthly mortgage payments relate to income using data from MBA’s weekly applications survey. This improvement marks the second consecutive month of increasing affordability and can be attributed to a decline in interest rates from October 2023 highs.
"While the average median purchase application amount increased to $306,450, MBA expects that affordability conditions will continue to improve as mortgage rates fall further and as housing inventory continues to increase," said Edward Seiler, MBA’s associate vice president, Housing Economics, and executive director, Research Institute for Housing America.
The PAPI measures borrower affordability conditions by evaluating the mortgage payment to income ratio (PIR). A decrease in the PAPI indicates improving borrower affordability conditions, driven by factors such as lower loan application amounts, reduced mortgage rates, or increased earnings.
In December 2023, the national PAPI decreased by 3.8%, reaching 161.8, its lowest level since January 2023. While mortgage payments increased by 7.1%, strong earnings growth, up 5.5% compared to the previous year, contributed to this affordability improvement.
For borrowers applying for lower-payment mortgages at the 25th percentile, the national median mortgage payment dropped from $1,425 in November to $1,375 in December. The Builders’ Purchase Application Payment Index (BPAPI) also showed a decrease in the median mortgage payment for purchase mortgages, falling from $2,597 in November to $2,541 in December.
Affordability improvements were observed across different loan types and racial groups. FHA loan applicants saw their median mortgage payment decrease to $1,833 in December, down from $1,902 in November. Affordability increased for black, Hispanic, and white households, reflecting a positive trend in homebuyer affordability across demographics.
The top five states with the highest PAPI were Idaho (250.2), Nevada (240.8), Arizona (222.3), Florida (210.7), and Utah (207.6). Meanwhile, Wyoming (113.5), Louisiana (118.7), Alaska (121.3), Connecticut (125.0), and New York (128.0) were the top five states with the lowest PAPI, indicating higher affordability in these regions.
