After improving during the previous three months, home buyer affordability worsened in September, according to the Mortgage Bankers Association’s (MBA) Purchase Applications Payment Index (PAPI). The national median payment applied for by applicants increased 5.5% to $1,941 in September from $1,839 in August. The national median mortgage payment is up by $558, or 40.4%, in the first nine months of the year, according to the MBA.
“Home buyer affordability took an enormous hit in September, with the 75-basis point jump in mortgage rates leading to the typical home buyer’s monthly payment rising $102 from August,” says Edward Seiler, MBA’s associate vice president of housing economics and executive director of the Research Institute for Housing America. “With mortgage rates continuing to rise, the purchasing power of borrowers is shrinking. The median loan amount in September was $305,550—much lower than the February peak of $340,000.”
An increase in the PAPI, which measures how new monthly mortgage payments vary across time relative to income, indicates declining borrower affordability conditions. The national PAPI increased 5.5% to 163.6 in September, reversing four consecutive months of declines from a high of 164.2 in May. The increase means the mortgage payment to income ratio is higher due to increasing application loan amounts, rising mortgage rates, or a decrease in earnings.
Compared with September 2021, the PAPI has increased 32.5% in the first nine months of 2022. For borrowers applying for lower-payment mortgagees (the 25th percentile), the national mortgage payment increased to $1,271 in September from $1,210 in August.
The national median mortgage payment for FHA loan applicants increased $97 month over month and $544 year over year to $1,566 in September. The national median mortgage payment for conventional loan applicants was $2,003 in September, up from $1,901 in August and $1,373 in September 2021.
Nevada, Idaho, Arizona, Utah, and Florida registered the highest PAPI levels in September, while Washington, D.C., Connecticut, West Virginia, Alaska, and Iowa recorded the lowest PAPI levels for the month.
The MBA projects supply, affordability constraints, and economic uncertainty will continue to hamper the purchase market in the near-term future. According to Seiler, purchase origination volume is forecast to decrease 3.3% in 2023 to $1.53 trillion.
