Monthly mortgage payments drop for first time in 2024

New home buyers saw some relief last month as declining interest rates brought monthly payment levels down for the first time this year, the Mortgage Bankers Association said.

The average monthly payment for new purchase applications last month dropped 1.6% to $2,219 from April's mark of $2,256, according to the MBA. The latest decline helped erase some of the 2.5% hike seen a month earlier, pointing to the unpredictable patterns observed in the housing market over the past two years.

"Home buyer affordability conditions improved in May as slightly lower mortgage rates and an uptick in housing inventory slightly eased the recent rise in application payment amounts," said Edward Seiler, MBA's associate vice president, housing economics, and executive director, Research Institute for Housing America.

The average payment decreased for the first time since December, but May's mark still stood 2.4% higher from $2,165 one year ago. 

The trade group's purchase applications payment index, which measures home affordability based on interest rates, mortgage amounts and consumer wage growth, also fell 1.6% to a reading of 173.9 last month compared to 176.8 in April. 

A bump in median earnings over the past 12 months managed to offset recent rising housing costs over the same period to bring the current PAPI score down from 176.7 one year ago as well. Scores were benchmarked to 100 in 2012 to reflect the housing market following the Great Financial Crisis, with a lower number indicative of increased affordability conditions.

Expectations for rates to fall further this year will hopefully open up opportunities for the set of aspiring buyers who have been left on the sidelines, Seiler added. 

"MBA is forecasting for mortgage rates to fall closer to 6.5% by the end of the year, which along with rising inventory levels and a subsequent slowdown in home-price growth, should help affordability," he said. 

The housing market is already showing signs of price moderation in some markets, according to data compiled by Redfin, The price of the typical home sold between mid May and mid June came in 0.3% below their original listed value, falling under that mark for the first time in four years, the real estate brokerage found. Close to 7% of sellers lowered their asking price, the highest share since November 2022 and up from 4.7% a year ago.

Similarly, the share of homes selling above list price came in at just under one-third, or 32.3%, which is the smallest portion since 2020 as well.    

Aligning with Redin's findings, the average new payment amount declined across the board in May across borrowing segments, MBA said. 

Borrowers applying for loans backed by the Federal Housing Administration saw payments slide down 1.6% to $1,924 from $1,955 in April.

Monthly payments on newly originated conventional mortgages were down 2% on a monthly basis, falling to $2,226 from $2,271   

Similarly, mean housing expenses for buyers of newly constructed homes dropped 3.1% between April and May, from $2,604 to $2,522.

New purchase borrowers facing the most challenging affordability conditions appeared concentrated in the Western U.S., as Idaho, Nevada and Arizona took the "top" 3 spots with MBA index readings of 262.9, 258.3 and 231.4, respectively. They were followed by Florida and Rhode Island.

On the other end, the most affordable states per PAPI were spread out across the country, with Louisiana clocking in at 127.4, Connecticut at 131.4 and New York at 132.2. Alaska and West Virginia took fourth and fifth spots.   

Meanwhile, affordability conditions improved across racial demographics by nearly identical margins of 1.6% to 1.7%. White households posted a May score of 176.5, decreasing from 179.4 the prior month, while the Hispanic segment of borrowers saw their index levels decline to 166.1 from 168.9. The national PAPI reading for Black households fell to 180.1 from 183.1.