Home affordability takes a hit after months of positive news

Home affordability reversed course this fall, with median payments up for the first time since April due to higher mortgage rates.

The median monthly payment on new-purchase mortgages increased 4.2% to $2,127 in October from $2,051 a month earlier. Still, the current payment level moderated from one year prior, coming in 3.3% lower from the October 2023 mark of $2,199, according to the Mortgage Bankers Association. 

This was the first rise in six months and finished at its highest mark since July, the industry trade group said.

"Homebuyer affordability conditions declined notably in October as rapidly rising mortgage rates pushed the national median mortgage payment up $86 from September," said Edward Seiler, MBA's associate vice president, housing economics, and executive director of Research Institute for Housing America, in a press release. 

"We expect weaker homebuyer affordability to remain a hurdle for prospective buyers in the final months of 2024," he added.

The average fixed rate for 30-year mortgages surged 70 basis points between the first and last week of October after consistently falling for most of the previous five months, according to Freddie Mac's weekly market survey. A strong September jobs report helped send rates higher during the month, and market optimism following the presidential election appears unlikely to apply significant downward pressure in the near term, researchers have noted. 

In November, mortgage rates moved higher, despite the Federal Reserve's recent cut of 25 basis points. 

Median payment amounts accelerated across the full range of housing and loan types, according to MBA. The median monthly amount needed to afford a newly built single-family home last month took an even larger 5.9% jump to $2,470 from $2,333 in September. 

Borrowers taking out loans with balances in the lowest 25th percentile saw the median payment increase 4.5% to $1,431 in October from $1,369 a month earlier, 

Meanwhile, payments for buyers taking out Federal Housing Administration-backed mortgages rose to a median level of $1,842, which was 5% higher than $1,753 in September.

The monthly payment amount for conventional loan applicants came in at $2,134, up 3.9% month over month from $2,208.

While mortgage rates pushed payment amounts higher in October, wage growth helped temper some of their adverse effects on homeowners. The MBA's overall purchase-applications payment index climbed higher, albeit at a slower pace than for median remittances. MBA's index measures payments relative to income, factoring in purchase-application loan amounts, mortgage rates and wages, with increasing scores indicative of declining affordability. 

The national PAPI increased 2.8% to a reading of 162.3 in October from 157.9 a month earlier. The latest number, though, took a 7.7% fall from its near record high of 175.9 a year ago. 

Affordability waned across racial groups during the month, with PAPI readings rising between 2.7% to 2.8% for white, Black and Hispanic segments. 

As has been the case for much of the past two years, the most unaffordable states were located in the West, with Idaho on top, posting the highest index score of 241.9. Nevada followed at 241.6, and Arizona came in at 217.2.

On the other end of the spectrum, states that had the most affordability were spread across the country. Louisiana, Connecticut and Alaska landed in the top three spots, with readings of 114.8, 115.1 and 119.1, respectively.