MBA's index points to growing affordability challenges
The cost of buying a home became even more burdensome for many in October, with mortgage application payments increasing by 2%.
The Mortgage Bankers Association’s latest Purchase Applications Payment Index (PAPI) showed that the median mortgage payment applied for by purchasers climbed to $2,199, up from $2,155 in September.
Nationally, the PAPI rose 1.2% to 175.9, almost reaching its peak set in May 2023. Despite a 3.9% year-over-year increase in median earnings, mortgage payments grew by 9.3%, leading to an annual PAPI increase of 5.2%. Specifically, for the lower 25th percentile of payment mortgages, the national median payment increased from $1,437 in September to $1,466 in October.
An increase in the PAPI signals deteriorating affordability, primarily due to rising application loan amounts, higher mortgage rates, or declining earnings. Vice versa, a drop in the PAPI indicates improving affordability through reduced loan amounts, lower mortgage rates, or increased earnings.
“Homebuyer affordability conditions declined further in October, with the jump in mortgage rates during the month dissuading would-be buyers from entering the housing market,” Edward Seiler, vice president of housing economics at MBA, said in a statement.
Read more: Who are the savvy homebuyers amid lack of affordability?
Another key finding is the decrease in the national mortgage payment to rent ratio (MPRR), which slipped from 1.50 in June 2023 to 1.47 by September’s end. This shift indicates that the relative cost of mortgage payments for home purchases has lessened compared to rents. The Census Bureau reported that the national median asking rent rose marginally to $1,462 in the second quarter of 2023.
Additional key insights from the October 2023 PAPI report include:
- For FHA loan applicants, the median mortgage payment increased to $1,955, up from $1,920 in September and up from $1,666 in October 2022.
- The median mortgage payment for conventional loan applicants climbed to $2,208 from $2,180 the previous month and $2,047 a year ago.
- States with the highest PAPIs included Nevada (274.4), Idaho (272.2), Arizona (246.7), California (230.4), and Florida (229.7).
- The lowest PAPIs were observed in Louisiana (127.9), New York (129.7), Connecticut (130.1), Oklahoma (133.4), and West Virginia (134.3).
“MBA expects affordability conditions to remain challenging to close out 2023 before a slight improvement by early next year,” Seiler said.
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