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Home buyer affordability continued to decline in October, with the national median payment applied for by purchase applicants increasing 2% month over month to $2,199. The Mortgage Bankers Association's Purchase Applications Payment Index (PAPI) increased 1.2% to 175.9 in October from 173.8 in September.

The PAPI measures how new monthly mortgage payments vary across time—relative to income—using data from the MBA’s Weekly Applications Survey. An increase in the PAPI is indicative of declining affordability conditions, reflecting a higher mortgage payment to income ratio.

“Home buyer affordability conditions declined further in October, with the jump in mortgage rates during the month dissuading would-be buyers from entering the housing market,” says Edward Seiler, MBA’s associate vice president of housing economics and executive director for the Research Institute for Housing America. “MBA expects affordability conditions to remain challenging to close out 2023 before a slight improvement by early next year.”

The increase in the PAPI means the index is 1.5 points away from the record high it reached in May. Median earnings were up 3.9% compared with a year ago, while payments increased 9.3%. As a result of the strong earnings growth, the PAPI is up 5.2% on an annual basis.

For borrowers applying for lower-payment mortgages—in the 25th percentile—the national mortgage payment increased to $1,466 in October from $1,437 in September.

The Builders’ Purchase Application Payment Index (BPAPI) showed median mortgage payments for purchase mortgages from the MBA’s Builder Application Survey increased $32 month over month to $2,672 in October.

The national mortgage payment to rent ratio decreased sequentially to 1.47 at the end of the third quarter. The decrease means mortgage payments for home purchases have decreased relative to rents.

The national median mortgage payment for FHA loan applicants was $1,955 in October, up from $1,920 in September and up from $1,666 in October 2022. The national median mortgage payment for conventional loan applicants was $2,208, up from $2,180 in September and up from $2,047 in October 2022.

The five states with the highest PAPI were Nevada, Idaho, Arizona, California, and Florida, while the states with the lowest PAPI were Louisiana, New York, Connecticut, Oklahoma, and West Virginia.