The median monthly mortgage payment for new home purchases went down in September, marking the first time in four months home affordability has increased, the Mortgage Bankers Association said.
The median amount edged back 0.7% to $2,155 in September, according to the MBA's Purchase Applications Payment Index, or PAPI, a measure of mortgage affordability across time. While minimal, the number pulled back from $2,170 in August and $2,162 the prior two months. The last time the index declined was in June.
Compared to the same month a year ago when the median was $1,941, September's mark still finished 11% higher. The challenging economic reality facing consumers is leaving homeownership out of reach for many, the MBA said.
"Although there was a modest improvement in affordability last month, higher rates and low housing inventory are both keeping many would-be buyers out of the housing market," said Edward Seiler, MBA's associate vice president, housing economics, and executive director, Research Institute for Housing America, in a press release.
Affordability has eroded in 2023 largely due to rapidly rising mortgage rates — now at 23-year highs by MBA's measure — but recent smaller loan amounts helped offset some of their impact. A recent report from Redfin of sellers reducing their asking prices more frequently than in a typical September would have provided downward pressure on costs and a measure of relief as well.
Earlier this week, the online real estate brokerage also said deals were canceled last month at the highest rate in almost a year, a trend that may also trigger prices to fall. Just over 16% of properties that went under contract in September failed to close, it said.
The MBA's payments index posted a reading of 173.8 in September compared to 175 in August, with a lower score indicating greater affordability. The index was benchmarked to 100 in 2012, a measure of affordability conditions in the aftermath of the Great Financial Crisis.
Despite the monthly gain in affordability, September's score was still 6.3% above where it stood a year earlier. The trade group determined that median earnings increased on a year-over-year basis by 4.5%, countering the cumulative effect of steep accelerations in both home prices and interest rates. Income, housing costs and interest rates are all factored in when calculating the PAPI.
While the overall median payment amount declined last month, the trend did not spread across all borrowing segments or property types. Mortgages taken out for purchases of newly built single-family homes came with a 1.2% higher median payment of $2,640 in September, compared to $2,609 in August.
Borrowers of Federal Housing Administration-backed loans saw their median payment increase 0.6% to $1,920 in September from $1,909 the prior month. A year ago, the number came in at $1,566.
Meanwhile, the conventional mortgage payment edged downward by 0.3% to $2,180 from $2,187. In September of 2022, it stood at $2,003.
Affordability improved from month to month across all race categories tracked by the MBA, with the PAPI dropping to 174.8 from 176 for Black households. The reading for Hispanics inched down to 161.9 from 163, while white households saw the score decline to 176.2 from 177.4.
States suffering from the least affordability in September were primarily located in the Western U.S. Idaho topped the list with a PAPI reading of 280, followed by Nevada at 267.1 and Arizona, which registered a score of 241.8.
