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The Mortgage Bankers Association (MBA) reports that homebuyer affordability improved slightly in September, with the national median payment applied for by purchase applicants decreasing $15 monthly from $2,170 in August to $2,155 in September. The MBA measured this via its Purchase Applications Payment Index (PAPI), which measures how new monthly mortgage payments vary across time–relative to income.
Year-over-year, the national median payment applied was up $214 from one year ago, an 11% year-over-year increase.
“Although there was a modest improvement in affordability last month, higher rates and low housing inventory are both keeping many would-be buyers out of the housing market,” said Edward Seiler, Ph.D., MBA’s Associate VP, Housing Economics, and Executive Director, Research Institute for Housing America. “Challenges remains as 2023 comes to an end, but MBA is forecasting for a slight rebound in originations and a moderation in mortgage rates in 2024.”
By loan type, the national median mortgage payment for FHA loan applicants was $1,920 in September, up from $1,909 in August, and up year-over-year from $1,566 in September 2022. The national median mortgage payment for conventional loan applicants was $2,180, down from $2,187 in August, and up from $2,003 in September 2022.
An increase in MBA’s PAPI–indicative of declining borrower affordability conditions–means that the mortgage payment to income ratio (PIR) is higher due to increasing application loan amounts, rising mortgage rates, or a decrease in earnings. A decrease in the PAPI–indicative of improving borrower affordability conditions–occurs when loan application amounts decrease, mortgage rates decrease, or earnings increase.
The national PAPI decreased 0.7% to 173.8 in September from 175.0 in August due to lower typical application amounts dominating higher interest rates. With this decrease, the PAPI is 3.6 points lower than its record level in May 2023. Median earnings were up 4.5% compared to one year ago, and while payments increased by 11%, the strong earnings growth means that the PAPI is up 6.3% on an annual basis. For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment decreased to $1,437 in September from $1,444 in August.
Regionally, the top five states reporting the highest PAPI were:
- Idaho (280.0)
- Nevada (267.1)
- Arizona (241.8)
- California (227.9)
- Florida (225.8)
The top five states reporting the lowest PAPI were:
- Alaska (121.4)
- Connecticut (125.5)
- New York (126.7)
- West Virginia (127.5)
- Louisiana (130.3)
Mortgage rates continue to push toward the 8% mark, as Freddie Mac reports the average 30-year fixed-rate mortgage (FRM) at 7.63% for the week ending October 19, adding to affordability strains among prospective home buyers.
When analyzing buyer type, homebuyer affordability increased slightly for Black households, with the national PAPI decreasing from 176.0 in August to 174.8 in September. Affordability increased slightly for Hispanic households, with the national PAPI decreasing from 163.0 in August to 161.9 in September. Affordability increased slightly for White households, with the national PAPI decreasing from 177.4 in August to 176.2 in September.
The Builders’ Purchase Application Payment Index (BPAPI) showed that the median mortgage payment for purchase mortgages from MBA’s Builder Application Survey increased from $2,609 in August to $2,640 in September.
