Homebuyer affordability falling

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Rising mortgage rates and home prices are making it difficult for homeowners to obtain the American dream.

Homebuyer affordability declined in March, with the national median payment applied for by applicants rising 5% to $1,736 from $1,653 in February. 

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Those are the findings of the Mortgage Bankers Association's (MBA) new Purchase Applications Payment Index (PAPI).

A new home Washingtonville, N.Y. (AP Photo/John Minchillo, File / AP Newsroom)

The index measures how new monthly mortgage payments vary across time – relative to income – using data from MBA’s Weekly Applications Survey (WAS).

The demand for homes remains high, helped by the strong labor market and wage gains, but there are challenges.

HOMEBUYERS NATIONWIDE NEED 34% MORE INCOME TO AFFORD A HOME

"Rapid home-price growth and the 42- basis-point surge in mortgage rates last month slowed purchase application activity," said MBA's Associate Vice President Edward Seiler. "A typical borrower’s principal and interest payment was $387 more than in March 2021."

New Homes in Northern California (iStock).  (iStock)

"Swift price-appreciation, sky-high inflation, low inventory, and mortgage rates now two percentage points higher than last year are all headwinds for the housing market in the coming months – especially for first-time buyers," added Seiler.

The top five states with the highest PAPI were: Idaho, Nevada, Arizona, California, and Utah. 

HOUSING MARKET PREDICTIONS FOR 2022

The top five states with the lowest PAPI were: Washington, D.C., Alaska, Connecticut, West Virginia, and Louisiana. 

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.

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A decrease in the PAPI – indicative of improving borrower affordability conditions – occurs when loan application amounts decrease, mortgage rates decrease or earnings increase. 

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