With housing prices and interest rates climbing, it's becoming increasingly difficult for a consumer to afford to buy a home. Now the Mortgage Bankers Association has created an index to track this.
The MBA’s new Purchase Applications Payment Index (PAPI) measures how new monthly mortgage payments vary across time – relative to income – using data from MBA’s Weekly Applications Survey. Higher index values indicate the mortgage payment-to-income ratio (PIR) is higher than in a month where the index is lower.
According to the index, home affordability decreased in February, with the national median payment applied for by applicants jumping 8.3% to $1,653, up from $1,526 in January, the MBA said.
The national PAPI increased 8.3% to 146.3 in February from 135.1 in January, meaning payments on new mortgages take up a larger share of a typical person’s income, the MBA said. Compared to February 2021 (120.0), the index jumped 21.9%. For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment increased 9.8% to $1,094 from $996 in January 2022.
An increase in the PAPI, which indicates declining borrower affordability conditions, means the mortgage payment-to-income ratio (PIR) is higher due to increasing application loan amounts, rising mortgage rates, and/or a decrease in earnings, MBA said. A decrease in the index, which indicates improving borrower affordability conditions, occurs when loan application amounts decrease, mortgage rates decrease, and/or earnings increase, it said.
“Low unemployment has spurred strong income growth in early 2022, but homebuyer affordability has decreased due to the quick rise in mortgage rates amidst steep home-price growth,” said Edward Seiler, MBA's associate vice president, housing economics, and executive director, Research Institute for Housing America. “The 30-year, fixed-rate mortgage spiked 73 basis points from December 2021 through February 2022. Together with increased loan application amounts, a mortgage applicant’s median principal and interest payment in February jumped $127 from January and $337 from one year ago.”
MBA said its national mortgage payment-to-rent ratio (MPRR) — this month comparing median purchase mortgage application payments to median asking rents in December 2021 from the previous month — increased to 1.15 from 1.14, and was up from 1.01 in December 2020. That means mortgage payments for home purchases have increased relative to rents.
The national median asking rent in the fourth quarter of 2021 was $1,207, MBA said, noting that the 25th percentile mortgage application payment to median asking rent ratio increased from 0.73 in November to 0.74 in December 2021.
“Asking rents from first-quarter 2020 to fourth-quarter 2021 increased 16%, even outpacing the steep growth in mortgage application payments over that period,” Seiler said. “MBA’s mortgage payment-to-rent ratio is now at roughly the same level it was at the start of the COVID-19 pandemic in March 2020.”
Other highlights:
- The national median mortgage payment for FHA loan applicants was $1,280 in February, up from $1,217 in January and $1,107 in February 2021.
- The national median mortgage payment for conventional loan applicants was $1,273 in February, up from $1,152 in January and $1,042 in February 2021.
- The top five states with the highest PAPI were: Idaho (221.3), Nevada (216.5), Arizona (189.4), Utah (181.6), and Washington (180.4).
- The top five states with the lowest PAPI were: Washington, D.C. (86.3), Connecticut (91.8), Alaska (94.8), Iowa (101.2) and Wyoming (104.1).
- Homebuyer affordability decreased for Black households, with the national PAPI increasing from 140.0 in January to 151.6 in February.
- Homebuyer affordability decreased for Hispanic households, with the national PAPI increasing from 125.9 in January to 136.4 in February.
- Homebuyer affordability decreased for white households, with the national PAPI increasing from 136.6 in January to 147.9 in February
Contrary to other affordability indexes that make multiple assumptions about mortgage underwriting criteria to estimate mortgage payment level, the PAPI directly uses MBA’s Weekly Applications Survey data to calculate mortgage payments, the MBA said.
The PAPI also uses usual weekly earnings data from the U.S. Bureau of Labor Statistics’ Current Population Survey (CPS), the MBA said. Usual weekly earnings represent full-time wage and salary earnings before taxes and other deductions, and include any overtime pay, commissions, or tips usually received. The data are not seasonally adjusted.
The rent data series calculated for MBA’s national mortgage payment to rent ratio (MPRR) comes from the U.S. Census Bureau’s Housing Vacancies and Homeownership (HVS) survey’s median asking rent. The HVS data is quarterly, so the mortgage payment-to-rent ratio will be updated quarterly, MBA said.
