What's driving the surge in housing costs?
The affordability of home purchases declined in January as the median mortgage payment applied for by prospective buyers rose to $2,205, marking a 3.7% increase from $2,127 in December, according to the Mortgage Bankers Association’s (MBA) Purchase Applications Payment Index (PAPI).
The Mortgage Bankers Association’s PAPI measures mortgage payment variations relative to income using MBA’s Weekly Applications Survey data. Higher index values indicate reduced affordability. Builders’ Purchase Application Payment Index (BPAPI) tracks newly built homes, while the mortgage payment to rent ratio (MPRR) compares mortgage payments to rent.
“Homebuyer affordability conditions declined further in January as volatile mortgage rates and high home prices continue to impact many prospective buyers’ purchasing power,” said Edward Seiler, MBA’s associate vice president of housing economics and executive director of the Research Institute for Housing America.
The national PAPI index, which measures variations in mortgage payments relative to income, rose 3.1% to 165.9 in January from 160.8 in December. The increase was observed in 40 states. The median purchase application amount also climbed, rising from $319,000 in December to $324,800 in January. Meanwhile, mortgage interest rates increased by 18 basis points from December and 24 basis points from January 2024.
The MBA reported that mortgage payments for lower-payment applicants, at the 25th percentile, rose to $1,519 in January from $1,456 in December. Additionally, the national MPRR increased from 1.34 at the end of the third quarter in 2024 to 1.44 by the end of December, indicating that mortgage payments grew relative to rental costs, MBA noted.
For prospective homebuyers using different loan types, affordability declined across the board. The median mortgage payment for FHA loan applicants increased from $1,866 in December to $1,934 in January, while the median mortgage payment for conventional loan applicants rose from $2,128 to $2,225 during the same period. The BPAPI, which tracks mortgage payments on new construction, saw payments increase from $2,500 in December to $2,531 in January.
The report also highlighted significant geographic disparities in home affordability. The top five states with the highest PAPI scores, indicating the least affordability, were Idaho (261.8), Nevada (254.3), Arizona (218.7), Florida (208.9), and Rhode Island (205.9). Conversely, the states with the lowest PAPI scores, signaling better affordability conditions, were Louisiana (114.6), Connecticut (123.8), Alaska (125.9), Washington, D.C. (129.2), and Wyoming (132.5).
Affordability also declined across racial demographics, with the PAPI increasing from 152.2 to 157.0 for Black households, from 153.6 to 158.5 for Hispanic households, and from 163.8 to 168.9 for White households between December and January.
Despite these affordability challenges, the MBA maintains a cautiously optimistic outlook for the housing market, forecasting a 16% increase in purchase originations in 2025, reaching $2.1 trillion in activity.
Do you have something to say about the recent data? Share your thoughts in the comments below.
