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Affordability Conditions Improve in Majority of U.S. States

Homebuyer affordability improved for the second straight month in July, with the national median payment applied for by applicants decreasing to $1,844 from $1,893 in June. This is according to the Mortgage Bankers Association's (MBA) Purchase Applications Payment Index (PAPI), which measures how new monthly mortgage payments vary across time –relative to income– using data from MBA’s Weekly Applications Survey (WAS).

“Affordability conditions improved modestly in most of the country in July, as slightly lower mortgage rates and a decrease in the median loan amount led to the typical homebuyer’s mortgage payment falling $49 from June,” said Edward Seiler, MBA's Associate VP, Housing Economics, and Executive Director, Research Institute for Housing America. “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. The combination of a strong job market and moderating home-price growth could entice some of these buyers to return in the coming months.”

An increase in MBA’s PAPI –indicative of declining borrower affordability conditions– means that the mortgage payment to income ratio (PIR) is higher due to increasing application loan amounts, rising mortgage rates, or a decrease in earnings. A decrease in the PAPI – indicative of improving borrower affordability conditions – occurs when loan application amounts decrease, mortgage rates decrease, or earnings increase.

The national PAPI decreased 3.8% to 157.7 in July from 163.9 in June, meaning payments on new mortgages take up a smaller share of a typical person’s income. Compared to July 2021 (116.6), the index has jumped 35.2%. For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment was decreased between June and July 2022 from $1,241 to $1,210.

MBA’s national mortgage payment to rent ratio (MPRR) increased to 1.44 at the end of the second quarter (June 2022) from 1.38 at the end of the first quarter (March 2022), meaning mortgage payments for home purchases have increased relative to rents. The national median asking rent in second-quarter 2022 increased 4.7% on a quarterly basis to $1,314 ($1,255 in first-quarter 2022). The 25th percentile mortgage application payment to median asking rent ratio was 0.94 in June, up from 0.90 in March.

Additional Key Findings of MBA's Purchase Applications Payment Index (PAPI) – July 2022

  • The national median mortgage payment was $1,844 in July, down from $1,893 in June and $1,897 in May. Monthly payments are still up by $461 in the first seven months of the year –equal to a 33.3% increase.
  • Out of 50 states (and Washington, D.C.), 47 had lower PAPI values in July than in June. This includes nine of the top 10 states with the highest PAPI values.
  • The national median mortgage payment for FHA loan applicants was $1,461 in July, down from $1,474 in June, but up from $1,015 in July 2021.
  • The national median mortgage payment for conventional loan applicants was $1,892, down from $1,959 in June, and up from $1,361 in July 2021.
  • The top five states with the highest PAPI were: Idaho (250.8), Nevada (249.6), Arizona (230.5), Utah (209.9) and Florida (201.1).
  • The top five states with the lowest PAPI were: Washington, D.C. (101.4), Connecticut (105.1), Alaska (110.3), Louisiana (110.9), and West Virginia (116.6).
  • Homebuyer affordability increased for Black households, with the national PAPI decreasing from 159.2 in June to 153.1 in July.
  • Homebuyer affordability increased for Hispanic households, with the national PAPI decreasing from 154.9 in June to 149.0 in July.
  • Homebuyer affordability increased for White households, with the national PAPI decreasing from 164.7 in June to 158.5 in July.

“Rent growth has remained incredibly strong in recent quarters, but the influx of new developments coming onto the market should alleviate some of the affordability pressures that are affecting renters in many parts of the country,” added Seiler.

To read the full report, including more charts and methodology, click here.

About Author: Demetria Lester

Demetria C. Lester is a reporter for DS News and MReport magazines with more than eight years of writing experience. She has served as content coordinator and copy editor for the Los Angeles Daily News and the Orange County Register, in addition to 11 other Southern California publications. A former editor-in-chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington, she has covered events such as the Byron Nelson and Pac-12 Conferences, progressing into her freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, Lester is an avid jazz lover and likes to read. She can be reached at [email protected].

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