Homebuyer affordability, the silver lining in a cooled down housing market, took a huge hit in September as surging mortgage rates led monthly payments to rise.
The national median payment applicants applied for increased by 5.5% to $1,941 in September, up from last month’s $1,839, according to the Mortgage Bankers Association (MBA).
MBA’s PAPI, which measures how new monthly mortgage payments vary relative to income, rose 5.5% to 163.6 in September from 155 in August, reversing a four-month-consecutive decline from a high of 164.2 in May.
A decline in MBA’s PAPI, indicative of improving borrower affordability conditions, means the mortgage payment to income ratio is lower due to decreasing application loan amounts, mortgage rates or an increase in earnings.
“Homebuyer affordability took an enormous hit in September, with the 75-basis-point jump in mortgage rates leading to the typical homebuyer’s monthly payment rising $102 from August,” said Edward Seiler, MBA’s associate vice president of housing economics and executive director at Research Institute for Housing America.
With interest rates now at 14-year highs, the cost of homeownership is becoming an issue for most prospective home buyers. HousingWire recently spoke with CreditXpert’s Mike Darne about how mortgage lenders can leverage credit to help make homeownership more affordable.
Presented by: CreditXpert
Potential homebuyers stood on the sidelines as it became more difficult to purchase homes, as shown in September’s single-family home sales. After rebounding in August from a drop in July, sales of new single-family homes in September were at a seasonally adjusted annual rate of 603,000, down 10.9% from August and down 17.6% compared to a year ago, according to the U.S. Department of Housing and Urban Development (HUD) and the U.S. Census Bureau.
Despite the slower sales pace, the median sales price of a new home rose to $470,600 in September, up from $436,800 in August.
With mortgage rates continuing to rise comes the shrinking of borrowers’ purchasing power, said Seiler. The median loan amount in September stood at $305,550, much lower than the February peak of $340,000.
Inventory shortage, affordability constraints and economic uncertainty will continue to hamper the purchase market, Seiler added. The purchase origination volume is projected to decrease 3.3% in 2023 to $1.53 trillion, according to the MBA.