The Mortgage Bankers Association has developed a new tool which measures how new monthly mortgage payments vary across time—relative to income—using data from MBA’s Weekly Application Survey (WAS). The new index is called the Purchase Applications Payment Index (PAPI).
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. A decrease in the PAPI—indicative of improving borrower affordability conditions—occurs when loan application amounts decrease, mortgage rates decrease, or earnings increase.
The national PAPI increased 8.3% to 146.3 in February 2022 from 135.1 in January 2022, meaning payments on new mortgages take up a larger share of a typical person’s income. Compared to February 2021 (120.0), the index jumped 21.9%. For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment increased 9.8% to $1,094 from $996 in January 2022.
MBA’s national mortgage payment to rent ratio (MPRR)—this month comparing median purchase mortgage application payments to median asking rents in December 2021 from November 2021—increased to 1.15 from 1.14 and was up from 1.01 in December 2020, meaning mortgage payments for home purchases have increased relative to rents. The national median asking rent in fourth-quarter 2021 was $1,207. The 25th percentile mortgage application payment to median asking rent ratio increased from 0.73 in November 2021 to 0.74 in December 2021.
In a statement prepared for the release of the February PAPI, Edward Seiler, MBA’s Associate Vice President, Housing Economics and Executive Director, Research Institute for Housing America, said, “Low unemployment has spurred strong income growth in early 2022, but homebuyer affordability has decreased due to the quick rise in mortgage rates amidst steep home-price growth. The 30-year fixed-rate mortgage spiked 73 basis points from December 2021 through February 2022. Together with increased loan application amounts, a mortgage applicant’s median principal and interest payment in February jumped $127 from January and $337 from one year ago.”
“Asking rents from first-quarter 2020 to fourth-quarter 2021 increased 16 percent, even outpacing the steep growth in mortgage application payments over that period,” added Seiler. “MBA’s mortgage payment to rent ratio is now at roughly the same level it was at the start of the COVID-19 pandemic in March 2020.”
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Median Mortgage Application Payment Jumped 8.3 Percent in February to $1,653