The silver lining of the chilled housing market is homebuyer affordability 



Real estate and mortgage professionals lament the slowdown in the housing market caused in large part by inflation and economic uncertainty. But there is an advantage – some buyers enjoy a (relative) break.

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

Affordability conditions improved in 47 states as slightly lower mortgage rates and a drop in the median loan size caused the typical homebuyer’s mortgage payment to fall from June, Edward Seiler, vice-president Associate Chairman of the MBA for Housing Economics and Executive Director of the Research Institute for Housing America.

“Demand from homebuyers has weakened this summer as continued economic uncertainty, high inflation and still-high mortgage rates have caused many potential buyers to delay their home search,” Seiler said. “The combination of a strong labor market and moderate home price growth could keep some of these buyers coming back in the month ahead.”

Mortgage applications for new home purchases fell 16% in July from a year ago, according to the MBA building applications survey. The MBA estimates new home sales hit a sales pace of 591,000 units in July, the slowest since April 2020.

The decline in new home purchase requests is consistent with data on growing pessimism among homebuilders, in which the National Association of Home Builders said tighter monetary policy and high construction costs have led to a “housing recession.”

In July, the homebuilders’ sentiment index for newly built single-family homes fell to 50, the first time since May 2020, when it fell below breakeven.

The Payment of Purchase Demands Index (PAPI), which measures the change in new monthly mortgage payments relative to income, fell 3.8% to 157.7 in July from 163.9 in June. A decline in the MBA PAPI, indicating worsening borrower affordability conditions, means that the mortgage payment-to-income ratio is lower due to lower demand loan amounts, mortgage rates, or an increase revenues.

Affordability increased for all white, black and Hispanic households. The white household index fell at the highest rate at 164.7 in July from 158.5 the previous month. The index for black households fell to 153.1 and 149 for Hispanic households.

Borrowers in Idaho face the greatest affordability challenges with a PAPI index of 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) at the train.

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