Purchase mortgage applicants are seeing more reasons to smile

By at least one measurement, affordability is improving for prospective homebuyers, even as home prices continue to rise and mortgage credit availability remains relatively low.

According to data released Thursday by the Mortgage Bankers Association (MBA), the median payment for purchase loan applicants declined by 0.8% from August to September. The median payment for these prospective borrowers dropped to $2,041 last month. Monthly payments were down 5.3%, or $114, compared to September 2023.

“Homebuyer affordability conditions improved for the fifth consecutive month, as mortgage rates near the low 6% range improved purchasing power for prospective buyers,” Edward Seiler, MBA’s associate vice president for housing economics and executive director of the Research Institute for Housing America, said in a statement.

“Overall affordability is now at its highest level since August 2022, but the recent jump in rates will likely cause conditions to plateau. MBA is forecasting for rates to be around 6.3% by the end of the year.” 

The trade group’s national Purchase Applications Payment Index (PAPI) measures how new monthly mortgage payments vary over time relative to income and uses data from MBA’s weekly applications survey.

The average mortgage payment declined in spite of an increase in the median loan size for purchase applicants, which went from $320,100 in August to $328,000 in September. This was tied in part to a mortgage rate decline of 31 basis points (bps) during the month, the MBA noted. Average rates at the end of September were 100 bps lower compared to April.

Also contributing to the lower PAPI figure were higher median household earnings, which rose 4.2% compared to September 2023.

MBA reported that mortgage payments for lower-income borrowers (those at the 25th percentile of applicants) dropped to $1,369 in September, down $19 from August. This was also reflected in median payments for Federal Housing Administration (FHA) loans, which stood at $1,753 in September. By comparison, the median payments an FHA loan applicant was $1,817 a month earlier and $1,920 one year ago.

Mortgage payments for new homes also declined during the month, down $29 to $2,362, according to MBA data derived from a survey of homebuilders.

Idaho, Nevada, Arizona, Florida and Rhode Island had the highest PAPI readings in September, making them the least affordable states for mortgage applicants. Conversely, the least expensive states were Louisiana, Connecticut, New York, West Virginia and Alaska.