In October The Average Mortgage Payment Sets A New Record

In October, affordability for homebuyers declined as increased mortgage rates caused monthly payments to reach all-time highs. According to the Mortgage Bankers Association (MBA), the national median monthly payment jumped 3.7% to $2,012 in October from $1,941 in September, setting a record for the study. The average monthly mortgage payment increased by $629 in the first 10 months of the year, which is also equal to a 45.5% year-over-year rise.

The findings highlight the difficult circumstances that many prospective purchasers have encountered this year as increased rates, rising property prices, and inflation make homeownership unaffordable.

According to Edward Seiler, MBA’s assistant vice president for housing economics and executive director of the Research Institute for Housing America, higher mortgage rates are also reducing potential purchasers’ purchasing power. The typical loan amount dropped to $295,000 last month, which is the lowest level since January 2021.

Rate increases reduce purchasing power

Mortgage rates reached their highest level since April 2002 in October, according to Freddie Mac, which led to a significant increase in monthly mortgage payments. The greatest year-to-date increase in more than 50 years, rates had risen by almost 4 percentage points at that point.

According to the MBA, the Federal Reserve’s sharp rate rise, which was motivated by its vigorous fight against inflation, slashed homeowner demand to its lowest level in 25 years in October, with purchase activity down 46% from a year earlier. For nine straight months, pre-owned home sales have decreased, with an October year-over-year decline of 28.4%.

Challenges with affordability, in Seiler’s opinion, have slowed down the housing market. In the last two months of the year, he predicted, “weakening affordability and rising economic uncertainty are projected to reduce house purchase activity.”

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The national PAPI reading jumped to 167.9 in October from 163.6 in September, according to the MBA’s Purchase Applications Payment Index (PAPI), which gauges affordability conditions, showing that levels of affordability for prospective purchasers deteriorated. The index is now 38.1% higher than it was a year ago and has surpassed the previous record of 164.2 established in May 2022.

The nationwide mortgage payment for borrowers seeking lower-payment mortgages (the 25th percentile) climbed to $1,323 in October from $1,271 in September.

In terms of affordability, Taylor Marr, deputy chief economist at Redfin, told Yahoo Money that “first-time buyers are the most hit.” They simply cannot afford much considering the exorbitant cost of homes. To mitigate the effects of rising borrowing costs, many who were looking to buy went to government-backed loans, which frequently have lower interest rates than normal loans. Nevertheless, those loans’ monthly payments also went up during the month.

Federal Housing Administration (FHA) loan applicants’ median monthly payment increased to $1,666 nationally in October from $1,566 in September and $1,056 a year earlier. Contrarily, the MBA noted that borrowers seeking conventional loans faced a monthly mortgage payment of $2,047, up from $2,003 in September and $1,431 a year earlier.

George Ratiu, senior economist and manager of economic research for Realtor.com, stated in a recent interview that “the impact on a family’s budget is enormous.” Nevada had the most difficult affordability conditions for borrowers, with a PAPI index of 279.7, followed by Idaho (269.7), Arizona (241.7), Washington (219.7), and Utah (219.5). (218.9).

Alaska (113.6), Washington, D.C. (114.2), West Virginia (115.1), Connecticut (120.9), and Louisiana had the best borrower affordability conditions (125.6).

All demographic groups saw a decline in homebuyer affordability, with Black and White households experiencing the greatest decline, followed by Hispanic households.

Home price growth has now exceeded income growth for the first time in two and a half years thanks to historically low borrowing rates, according to Andy Walden, vice president of enterprise research and strategy at Black Knight. “Affordability is out of balance now that interest rates are rising back toward their long-term norms.”

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