Homebuyer affordability deteriorates in May amid inflation and higher mortgage rates

Affordability for homebuyers fell slightly in May as new mortgages took up a larger share of the average person’s income, while rates trended higher. High inflation and rising mortgage rates will not ease the burden on new home buyers in the coming months.

The national median payment requested by applicants rose to $1,897 last month from $1,889 in April, according to the Mortgage Bankers Association (MBA). The national median mortgage payment for conventional loans was $1,960, down slightly from $1,967 in April, but significantly higher than a year ago, when it was $1,394 in May 2021. Federal Housing Administration (FHA) loan payments hit $1,430 in May from $1,374 the previous month.

“The continued rise in house prices and the rapid rise in mortgage rates led to a slowdown in purchase requests in May,” said Edward Seiler, MBA associate vice president for housing economics and executive director of Research. Institute for Housing America, according to a statement.

“While the median principal and interest payment is up just $8 from April, a typical borrower is paying $514 more in the first five months of 2022, a jump of 37.1%” , did he declare.

The average rate of real estate purchase loans rose to 5.27% at the beginning of May, according to Freddie Mac PMMS, a 13-year high until it broke above the 6% level in June.

Citing inflationary pressures and mortgage rates above 5%, Seiler said the MBA expects new and existing home sales to fall below 2021 levels. The agency expects some 5.76 million existing homes will be sold in 2022, well below the sale of 6.13 million existing homes the previous year. Sales of new homes are expected to remain slightly more stable, with the sale of 769,000 new homes expected, compared to 771,000 new homes sold last year.

The Payment of Purchase Demands Index (PAPI), which measures the change in new monthly mortgage payments relative to income, rose 0.4% to 163.4 in May from 162.8 in April. An increase in MBA PAPI, indicating worsening borrower affordability conditions, means that the mortgage payment to income ratio is higher due to increased demand loan amounts, higher mortgage rates or a drop in income.

Black and white household affordability fell at the highest rate at 0.7 points. The index for black households rose to 166.6 and to 164.3 for white households in May from April.

Borrowers in Idaho face the greatest affordability challenges with a PAPI index of 253, followed by Nevada (249.7), Arizona (233.5) and Utah (210.9) .

Meanwhile, borrower affordability conditions were best in Washington DC (99.7), with Alaska (102.6), Connecticut (111.2) and West Virginia (113) at the dragged.

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