Home buyer affordability improved in December, with the national median payment applied for by purchase applicants decreasing 2.9% to $1,920, according to the Mortgage Bankers Association’s (MBA) Purchase Applications Payment Index (PAPI). The PAPI measures how monthly mortgage payments vary across time relative to income using data from MBA’s Weekly Applications Survey (WAS).

A decrease in the PAPI—indicative of improving borrower affordability conditions—occurs when loan application amounts decrease, mortgage rates decrease, or earnings increase. Compared with December 2021, the PAPI increased 38.8%, according to the MBA. For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment decreased to $1,279 in December from $1,289 in November.

“There was a slight improvement in home buyer affordability last month as mortgage rates fell by 37 basis points from November,” says Edward Seiler, MBA’s associate vice president of housing economics and executive director of the Research Institute for Housing America. “While overall home buyer affordability did increase, the median purchase application amount last month increased nearly $3,000 to $300,000. With inflation cooling slightly, MBA expects both mortgage rates and home-price growth to soften, which along with cooling inflation, should help bring more prospective buyers into the market during the spring home buying season.”

The December release included a new data set—the Builders’ Purchase Application Payment Index (BPAPI)—for the MBA on applications for newly built single-family homes from MBA’s Builder Application Survey (BAS). The December BPAPI showed the median mortgage payment for purchase mortgages from the BAS was $2,399 in December, a 35.5% increase on a year-over-year basis.

The national median mortgage payment for FHA loan applicants was $1,602 in December, a $29 decrease from November and a $532 increase from December 2021. The national median mortgage payment for conventional loan applications decreased $40 month over month to $1,954 in December. The national median mortgage payment for conventional loan applicants in December 2021 was $1,447.

According to the MBA, the states with the highest PAPI were Nevada (259.2), Idaho (248.4), Arizona (219.2), Utah (213.9), and Florida (204.7). The states with the lowest PAPI were North Dakota (102.1), Vermont (105.0), Washington, D.C. (106.6), Connecticut (109.9), and West Virginia (115.0). Additionally, home buyer affordability increased on a month-over-month basis for Black, Hispanic, and white households, according to the MBA.