Homebuyer affordability eroded in January, as home prices increased and offset the decline in mortgage rates that came during the month.
According to the Mortgage Bankers Association’s (MBA) Purchase Applications Payment Index (PAPI), the national median payment applied for by purchase applicants increased to $2,134 in January, up from $2,055 in December.
That’s an increase of $78 and is up $170 from one year ago, equal to an 8.6% annual increase.
The index measures how new monthly mortgage payments vary across time – relative to income – using data from MBA’s Weekly Applications Survey (WAS).
“Homebuyer affordability conditions declined in January, with higher home prices pushing loan amounts upward and ultimately offsetting what was a monthly decline in mortgage rates,” says Edward Seiler, associate vice president, housing economics for the MBA, and executive director, Research Institute for Housing America, in a statement. “Mortgage rates have risen throughout February and will likely continue to hamper affordability and prospective homebuyers’ ability to buy heading into spring.”
The index increased 3.8% to a score of 166.3, up from 161.8 in December.
Median earnings were up 5.2% compared with January 2023, and while payments increased 8.6%, the strong earnings growth means that the PAPI is up 3.3% on an annual basis.
For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment increased to $1,438 in January, up from $1,375 in December.
Looking at new homes sales only, the median mortgage payment for purchase mortgages from MBA’s Builder Application Survey decreased to $2,501 in January, down from $2,541 in December.
MBA’s national mortgage payment to rent ratio (MPRR) decreased from 1.47 at the end of the third quarter (September 2023) to 1.40 at the end of the fourth quarter (December 2023), meaning mortgage payments for home purchases have decreased relative to rents.
The Census Bureau’s Housing Vacancies Survey (HVS) national median asking rent in the fourth quarter increased 0.2% compared with the third quarter, rising to $1,465.
The 25th percentile mortgage application payment to median asking rent ratio decreased slightly to 0.94 in December (0.98 in September 2023).
Photo: Alexander Grey