Homebuyer affordability improves for the fourth straight month
After months of challenges, homebuyers are gradually returning to the housing market, driven by improving affordability.
According to the Mortgage Bankers Association (MBA), the national median mortgage payment for purchase applicants dropped to $2,057 in August, down from $2,140 in July. While this might seem like a modest decrease, it marks a significant turning point after a stretch of high mortgage rates and rising home prices kept many potential buyers on the sidelines.
“Homebuyer affordability conditions improved for the fourth consecutive month, with lower mortgage rates, rising incomes, and slower home-price growth giving prospective buyers’ budgets a much-needed boost,” said Edward Seiler, MBA’s associate vice president of housing economics, and executive director of Research Institute for Housing America.
The MBA’s Purchase Applications Payment Index (PAPI), which tracks how mortgage payments stack up against income, reflected a 3.9% decrease in August. This drop signals an improvement in affordability, with the national PAPI falling from 167.2 in July to 160.7.
While mortgage payments decreased by 5.2%, a modest 3.2% increase in earnings further strengthened the affordability outlook, marking an 8.2% annual improvement.
For borrowers with more modest mortgage payments, the national mortgage payment at the 25th percentile fell to $1,388 in August from $1,444 the previous month. Additionally, the median mortgage payment for purchase mortgages in the MBA’s Builder Application Survey (BPAPI) also fell, reaching $2,362 in August compared to $2,452 in July.
Different loan types reflected similar trends. For FHA loan applicants, the median mortgage payment dipped to $1,817 in August, down from $1,838 in July and from $1,909 in August 2023. Conventional loan applicants also saw their median payment drop to $2,056, a notable decrease from $2,140 in July and $2,187 a year earlier.
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The report also highlighted regional differences in affordability. Idaho topped the list with the highest PAPI at 252.1, followed by Nevada, Arizona, Florida, and Utah. Meanwhile, the states with the lowest PAPIs included Louisiana (115.3), Connecticut, New York, DC, and Alaska.
Encouragingly, the improvement in affordability wasn’t just limited to certain demographics. Across the board, Black, Hispanic, and White households all saw gains in homebuyer affordability. For Black households, the national PAPI dropped from 167.7 in July to 161.2 in August. Hispanic households saw their PAPI fall to 150.0, and White households experienced a decline to 162.3.
“MBA expects that lower mortgage rates, coupled with increasing housing inventory, will entice additional homebuyers to enter the housing market,” Seiler said in the report.
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