The national median payment applied for by applicants decreased from $1,844 to $1,839 in August, marking the third consecutive month home buyer affordability improved, according to the Mortgage Bankers Association’s (MBA) Purchase Applications Payment Index (PAPI). Despite the increase in affordability over the past three months, monthly payments are still up by $456 in the first eight months of the year, according to the MBA.
The PAPI measures how new monthly mortgage payments vary across time relative to income using data from MBA’s Weekly Applications Survey. Thirty-two states had lower PAPI values in August than July.
“Most of the country saw modest improvements in home buyer affordability for the third straight month because of slightly lower mortgage rates amid steady income gain growth,” says Edward Seiler, MBA’s associate vice president of housing economics and the executive director of the Research Institute for Housing America. “The healthy labor market continues to be a positive for the housing market, despite ongoing economic uncertainty and high inflation.”
An increase in the PAPI indicates the mortgage payment to income ratio is higher due to increasing application loan amounts, rising mortgage rates, or a decrease in earnings. Conversely, a decrease in the PAPI—indicative of improving borrower affordability—occurs when loan application amounts decrease, mortgage rates decrease, or earnings increase.
The national PAPI decreased 0.3% to 157.9 in August, meaning payments on new mortgages take up a smaller share of a typical person’s income, according to the MBA. On a year-over-year basis, the PAPI has increased 36.5%. For borrowers applying for lower-payment mortgages, the national mortgage payment between July and August was unchanged at $1,210.
“Higher mortgage rates have reduced purchasing power since the start of the year. The median loan amount was $313,500, down from a peak of $340,000 in February,” Seiler says. “The recent stretch of modest affordability improvement likely hit a speed bump this month, as mortgage rates have jumped to around 6%.”
The national median mortgage payment for FHA loan applicants was $1,469 in August, an $8 month-over-month increase and a $60 year-over-year increase. For conventional loan applicants, the national median mortgage payment increased from $1,892 in July to $1,901 in August.
Idaho, Nevada, Arizona, Utah, and California recorded the highest PAPI values in August, while Washington, D.C., Alaska, Connecticut, Louisiana, and Oklahoma recorded the lowest PAPI values last month.
