Affordability improves amid economic uncertainty
Despite economic headwinds, US home buyers are starting to find relief as the hot seller’s market cools down, with the national median mortgage payment decreasing slightly to $1,839 in August.
Homebuyer affordability improved for the third consecutive month in August, according to the Mortgage Bankers Association’s Purchase Applications Payment Index (PAPI), which measures how new monthly mortgage payments vary across time – relative to income.
The national PAPI dropped to 157.9 in August, a 0.3% dip from July and up 36.5% from a year ago. This means payments on new mortgages take up a smaller share of a typical person’s income. For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment between July and August 2022 was unchanged at $1,210.
“Most of the country saw modest improvements in homebuyer affordability for the third straight month because of slightly lower mortgage rates amid steady income growth,” said Edward Seiler, MBA’s AVP of 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. Higher mortgage rates have reduced borrowers’ purchasing power since the start of the year.”
Seiler noted that the median loan amount in August was $313,500, down from a peak of $340,000 in February.
“The recent stretch of modest affordability improvement likely hit a speedbump this month, as mortgage rates have jumped above 6%,” he said.
Other key findings of the MBA’s report include:
• Out of 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.