Housing MarketReal Estate

Silver lining in cooled down housing market is homebuyer affordability

Combination of a strong job market and moderating home-price growth could entice buyers to return: MBA

Real estate and mortgage professionals are lamenting the slowdown in the housing market caused largely by inflation and economic uncertainty. But there is one benefit – some buyers are catching a (relative) break.

The national median monthly payment applied for by mortgage applicants dropped $49 to $1,844 in July, marking improved homebuyer affordability for two straight months, the Mortgage Bankers Association (MBA) said. The national median mortgage payment for conventional loans was $1,892, down from June’s $1,959, but significantly higher than a year ago, when it was $1,361 in July 2021. Federal Housing Administration (FHA) loan payments also dropped marginally to $1,461 in July from the previous month’s $1,474. 

Affordability conditions improved in 47 states as slightly lower mortgage rates and a drop in the median loan amount led to the typical homebuyer’s mortgage payment falling from June, Edward Seiler, MBA’s associate vice president for housing economics and executive director at the 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,” Seiler said. “The combination of a strong job market and moderating home-price growth could entice some of these buyers to return in the coming month.”

Mortgage applications for new home purchases dropped 16% in July from a year ago, according to the MBA’s builder application survey. The MBA estimates new home sales came in at 591,000-unit sales pace in July, the slowest since April 2020. 

The slide in purchase applications for new homes is consistent with data on increasing homebuilder pessimism, in which the National Association of Home Builders said tighter monetary policy and elevated constructions costs brought on a “housing recession.” 

Creating a path to success in today’s purchase market

Meeting the needs of a new generation of homebuyers while managing the ebbs and flows of a volatile housing market is a major endeavor for any mortgage lender. So, what should lenders be doing to thrive in the face of a post-pandemic housing market rife with new hurdles?

Presented by: Calyx

In July, the homebuilder sentiment index for newly built single-family homes fell to a reading of 50, the first time since May 2020 when it dropped below the breakeven point.

The purchase applications payment index (PAPI), which measures how new monthly mortgage payments vary relative to income, decreased 3.8% to 157.7 in July from 163.9 in June. A decline in MBA’s PAPI, indicative of worsening 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. 

Affordability increased for all white, Black and Hispanic households. The index for white households dropped at the steepest rate to 164.7 in July from the previous month’s 158.5. The index for Black households decreased to 153.1 and 149 for Hispanic households. 

Borrowers in Idaho are facing the greatest affordability challenges with a PAPI index coming in at 250.8 followed by Nevada (249.6), Arizona (230.5) and Utah (209.9). 

Meanwhile, borrower affordability conditions were best in Washington D.C. (101.4), with Connecticut (105.1), Louisiana (110.9) and West Virginia (116.6) trailing behind.

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