Affordability improved in July, with the national median payment applied for by applicants falling to $1,844 from $1,893 in June, the Mortgage Bankers Association (MBA) reported.
MBA’s Purchase Applications Payment Index (PAPI) fell for a second consecutive month, down 3.8% to a reading of 157.7.
PAPI measures monthly payments across time and relative to income, so this reading indicates that payments on new mortgages accounted for a smaller share of a typical person’s income.
The improvement can be attributed to lower mortgage rates and less competition as more potential buyers are priced out of the market. Rates dipped to 5.13% last week, though they are back up this week.
Additionally, purchase demand has declined sharply this year. Overall loan application volume dipped this week to its lowest level since 2000.
But while affordability is getting better, the index is still up 35.2% YOY.
“Homebuyer demand has faltered this summer, as lingering economic uncertainty, high inflation, and still-high mortgage rates caused many prospective buyers to delay their home search,” said Edward Seiler, MBA’s Associate Vice President, Housing Economics, and Executive Director, Research Institute for Housing America.
“The combination of a strong job market and moderating home-price growth could entice some of these buyers to return in the coming months.”
Buyers who are sticking it out are beginning to see the market shift in their favor. As competition cools, sellers can no longer expect a rapid over-asking offer on their homes. Many are slashing prices and making concessions.
“The buyers who are still in the game are finally getting a break from bidding wars, which means they can be picky,” said Raleigh, NC Redfin Agent Pam Lewis.
“Three months ago, buyers were saying, ‘Get me a building with four walls and I’ll make it work.’ Now they have some choices.”