Homebuyer affordability continued its downward trajectory in October, as the national median payment applied for by applicants increased 3.7 percent to $2,012 from $1,941 in September [1]. This is according to the Mortgage Bankers Association's (MBA) Purchase Applications Payment Index [2] (PAPI), which measures how new monthly mortgage payments vary across time – relative to income – using data from MBA’s Weekly Applications Survey [3] (WAS).
“Prospective homebuyers continued to feel the effects of higher mortgage rates in October, with the 70-basis-point jump in rates leading to the typical monthly mortgage payment rising to a new survey high of $2,012,” said Edward Seiler, MBA’s Associate VP of Housing Economics, and Executive Director, Research Institute for Housing America. “Higher mortgage rates are also squeezing the purchasing power of prospective buyers. The median loan amount last month decreased to $295,000 – the lowest level since January 2021. Weakening affordability and increased economic uncertainty are expected to slow homebuying activity in the final two months of the year.”
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 (Figure 1) increased 2.7 percent to 167.9 in October from 163.6 in September. The index eclipsed the previous high of 164.2 in May 2022. The index has jumped 36.0 percent in the first ten months of 2022 and is up 38.1 percent compared to October 2021 (121.6). For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment increased to $1,323 in October from $1,271 in September.
MBA’s national mortgage payment to rent ratio (MPRR) increased to 1.46 at the end of the third quarter (September 2022) from 1.44 at the end of the second quarter (June 2022), meaning mortgage payments for home purchases have increased relative to rents. The national median asking rent in third-quarter 2022 increased 1.5 percent on a quarterly basis to $1,334 ($1,314 in second-quarter 2022). The 25th percentile mortgage application payment to median asking rent ratio was 0.95 in September, up from 0.94 in June.
“Median asking rents increased at an annualized 6.2 percent between the second and third quarters of 2022, but have shown some deceleration in recent months. Despite the increasing mortgage rates in the third quarter, elevated rental payments kept the MPRR under one for many potential first-time homebuyer who may be looking for a smaller mortgage amount,” added Seiler.
Additional Key Findings of MBA's Purchase Applications Payment Index (PAPI) – October 2022
- The national median mortgage payment was $2,012 in October, up from $1,941 in September and $1,839 in August. Mortgage payments are up by $629 in the first ten months of the year, equal to a 45.5 percent increase.
- The national median mortgage payment for FHA loan applicants was $1,666 in October, up from $1,566 in September and $1,056 in October 2021.
- The national median mortgage payment for conventional loan applicants was $2,047, up from $2,003 in September and $1,431 in October 2021.
- The top five states with the highest PAPI were: Nevada (279.7), Idaho (269.7), Arizona (241.7), Washington (219.7), and Utah (218.9).
- The top five states with the lowest PAPI were: Alaska (113.6), Washington, D.C. (114.2), West Virginia (115.1), Connecticut (120.9), and Louisiana (125.6).
- Homebuyer affordability decreased for Black households, with the national PAPI increasing from 164.0 in September to 168.4 in October.
- Homebuyer affordability decreased for Hispanic households, with the national PAPI increasing from 149.9 in September to 153.9 in October.
- Homebuyer affordability decreased for White households, with the national PAPI increasing from 163.9 in September to 168.3 in October.
To read the full report, including more charts and methodology, click here [1].