The monthly cost burden of purchasing a new home, as interest rates and house prices rose precipitously in 2022, has continued into 2023. Indeed, this week’s Weekly Applications Survey (WAS) release noted that the 30-year fixed mortgage rate is at 7.67%—the highest level since 2000—and the Federal Housing Finance Agency’s House Price Index shows that house prices continue to appreciate even as interest rates have eclipsed 7%. MBA’s Purchase Applications Payment Index (PAPI), which uses WAS data to measure how new fixed-rate 30-year purchase mortgage payments vary across time relative to income, increased by 29.2% in 2022 and reached a series high in May 2023 when it was 43.7% higher than at the start of 2022. Since then, despite 30-year rates continuing to climb, the index has decreased slightly as median loan application amounts have moderated.
In this week’s MBA Chart of the Week, we show the PAPI series—constructed using median WAS payments and median income—for the nation and six selected states. The red line, which shows the national PAPI series, reached 177.4 in May 2023. It has remained in record territory and was 175.4 in the most recent PAPI release (that uses August WAS data). Similar patterns are evident across the country. In Idaho, the state with the highest PAPI in August, the index is up 71% since it first overtook Nevada in the number-one spot in October 2020. Even lower PAPI states—i.e., states where affordability has eroded the least relative to March 2012—such as Connecticut and Pennsylvania, have seen their affordability levels decrease substantially in the last year and a half. For example, at the start of 2022, the PAPI in Connecticut was 74.8 (meaning that the median loan payment relative to median income was 25% less than in March 2012). This trend, however, has reversed since the start of 2022, with the latest PAPI reading at 126.0. In other words, purchase affordability in Connecticut has eroded by about two-thirds in the last 20 months.
Tellingly, PAPI was higher in every state and the District of Columbia in December 2022 than in December 2021. Moreover, it was higher in August 2023 in every state and DC than in December 2022. The good news is that we may be near the top. MBA is forecasting that mortgage interest rates will steadily decline over the next few years and that median existing home sales prices will also decrease through 2024. This should reduce PAPI levels, but it may not be until 2025 that the index retreats to meaningfully lower levels and affordability notably improves.