Homebuyers are really starting to feel the pressure
The double whammy of higher mortgage rates and escalating home prices reduced homebuyer opportunities in February. The trend is also likely to intensify in the coming months.
The national average of monthly mortgage payments settled in loan applications rose 8.3% from $1,526 in January to $1,653 in February, according to a survey released Thursday Association of Mortgage Banks. Compared to February 2021, payments increased by 25.6%.
The national median mortgage payment for conventional loans rose to $1,749 in February from $1,582 in January. In the meantime, FTA Loans increased from $1,142 to $1,201 over the same period.
“Low unemployment has fueled strong income growth in early 2022, but homebuyer affordability has declined due to rapid increases in mortgage rates amid soaring home prices,” said Edward Seiler, associate vice president of housing and executive director at MBA Research Institute for Housing Americain an opinion.
Loan officers told HousingWire on Thursday that rate fixes for 30-year fixed-rate mortgages were about 4.75%, about 30 basis points higher than Freddie Mac’s weekly PMMS report.
“Combined with increased loan application amounts, the average principal and interest payment by a mortgage applicant in February increased $127 from January and $337 from a year ago,” Seiler said.
The new Purchase Applications Payment Index (PAPI) rose to 146.3 in February, compared to 135.1 in the previous month. In February 2021, the index was 120.
A higher mortgage payment-to-income ratio means that new loans will take up a larger proportion of a typical person’s income due to rising application amounts, rising interest rates, or a drop in income.
Mortgages account for a higher proportion of black household income. The group’s index rose to 151.6 in February from 140 in January. For Hispanic households, it increased from 125.9 to 136.4 over the same period. For white households, the index rose to 147.9 in February, compared to 136.6 in January.
The report also shows that mortgage payments for home purchases have increased relative to rents. The MBA national mortgage payment-to-rent ratio (MPRR) increased from 1.01 in December 2020 to 1.14 in November 2021 and 1.15 in December 2021.
The national median asking rent for the fourth quarter of 2021 was $1,207, a 16% increase from the first quarter of 2020.
With the US Federal Reserve likely to start raising rates by 50 basis points as early as May, affordability concerns are almost certain to intensify in the coming months.