Housing affordability improves as median mortgage payments decline
In a positive turn for prospective homebuyers, the Mortgage Bankers Association (MBA) reported an improvement in housing affordability in December.
The median payment required by home purchase applicants fell to $2,055, down from $2,137 in November, according to MBA’s Purchase Applications Payment Index (PAPI). The index, which tracks variations in monthly mortgage payments about income, suggested a more favorable climate for homebuyers.
“Homebuyer affordability improved for the second consecutive month in December as interest rates declined significantly from recent highs,” said Edward Seiler, MBA’s associate vice president of housing economics.
Despite the median purchase application amount rising to $306,450, Seiler remains optimistic. He expects affordability to continue improving, driven by further reductions in mortgage rates and an increase in housing inventory.
MBA’s Purchase Applications Payment Index (PAPI) fell by 3.8% to 161.8, marking its lowest level since January of the previous year. This decline points to a market becoming increasingly accessible to borrowers, thanks in part to a 5.5% year-over-year increase in median earnings.
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Although mortgage payments rose by 7.1%, the strong earnings growth meant the year-over-year increase in the PAPI was only 1.4%. For those at the lower end of the mortgage spectrum (25th percentile), the national mortgage payment decreased to $1,375 in December, down from $1,425 in November.
In related data, the Builders’ Purchase Application Payment Index (BPAPI) also recorded a decrease in median mortgage payments for builder-originated mortgages. The index fell from $2,597 in November to $2,541 in December, aligning with the overall trend of enhanced affordability.
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