Homeownership has become less affordable for many Americans, according to the Mortgage Bankers Association’s latest report.
In January, the median payment made by home buyers applying for a mortgage rose to $1,964, up 2.3% from the previous month. Even though interest rates dropped slightly during the period, rising home prices mean that buyers are having to pay more to get onto the property ladder.
Edward Seiler, associate vice president for housing economics at the MBA, said he expected affordability challenges to continue to hit the market, particularly at the lower end where supply is limited.
“Although interest rates fell 16 basis points from December 2022 to January, home buyer affordability declined slightly due to the increase in the median purchase application amount, which inched up $12,000 to $312,000,” he said. “MBA expects the combination of economic uncertainty, high mortgage rates, and persisting affordability challenges to impact purchase demand—especially at the lower end of the market where supply is still tight.”
The MBA uses its Purchase Applications Payment Index (PAPI) to track changes in affordability over time, based on data from its Weekly Applications Survey. When the PAPI goes up, it means that buying a home has become less affordable for borrowers. Conversely, a decrease in the PAPI suggests that it has become more affordable.
In January, the national PAPI increased by 0.9% to 160.9, although it remains 6.3 points lower than its peak in October 2022. The index has risen by 21.2% compared with a year ago. Lower-payment mortgages have seen the biggest increase in median payment, which rose to $1,322 last month, up from $1,279 in December.
The report also showed that the national median payment for those applying for Federal Housing Administration loans rose to $1,619 in January, while the median payment for conventional loans rose to $2,009. The MBA also revealed that affordability had decreased for all households, regardless of race or ethnicity.
According to the Builders’ Purchase Application Payment Index, the median mortgage payment for purchase mortgages from MBA’s Builder Application Survey decreased to $2,379 in January compared with $2,399 the previous month.
The MBA’s national mortgage payment to rent ratio decreased from 1.50 at the end of September to 1.45 at the end of December. This means that mortgage payments for home purchases have decreased relative to rents. The national median asking rent in the fourth quarter declined 0.9% on a quarterly basis to $1,322.
