Affordability Declining As Monthly Payments Eat Up The Typical Borrower’s Income

The national median payment applied for by homebuyers rose 8.8% to $1,889 in April, according to the Mortgage Bankers Association’s (MBA) Purchase Applications Payment Index (PAPI).

PAPI measures changes in monthly mortgage payments relative to income across time. An increase shows the payment to income ratio is up due to increasing application loan amounts or mortgage rates, or a decline in earnings.

The national PAPI was up 7.8% to 162.7 in April. This shows affordability declining as payments increase, accounting for a larger share of a typical person’s income.

The index is up 27% YOY.

Borrowers in the 25th percentile of prices saw their mortgage payment rise 9.6% to $1,236.

“Rapid home-price growth, low inventory, and an 80-basis-point surge in mortgage rates slowed purchase applications in April, with the typical borrower’s principal and interest payment increasing $153 from March and $569 from a year ago,” said Edward Seiler, MBA’s Associate Vice President, Housing Economics, and Executive Director, Research Institute for Housing America. 

“Despite strong employment and wage growth, housing affordability has worsened since the start of the year. Mortgage payments are taking up a larger share of homebuyers’ incomes, and sky-high inflation is making it more difficult for some would-be buyers to save for a down payment or come up with the additional cash they need to afford a higher monthly payment.”

The national median mortgage payment for FHA loan applicants was $1,374 in April, up from $1,254 in March and $1,000 in April 2021, while the median payment for conventional loan applicants was $1,967 in April, up from $1,819 the month prior and $1,388 YOY.

The states with the highest PAPI were: Idaho (260.2), Nevada (250.7), Arizona (222.3), California (214.7), and Utah (207.1).

The states with the lowest PAPI were: Washington, D.C. (96.7), Connecticut (110.7), Louisiana (111.4), Alaska (113.2), and Wyoming (115.5).

Seiler added that double-digit price growth should moderate in 2022. The market is already showing signs of cooling, with bidding wars and mortgage applications falling. CoreLogic recently said the average regional housing market has a 28% chance of a price drop over the coming 12 months.