Mortgage payment amounts surged 39% in 2022

New home buyer payments increased by almost 39% in 2022, but borrowers saw some relief toward the end of the year thanks to lower interest rates, the Mortgage Bankers Association said.

The national median payment recorded on new buyer applications declined for a second straight month to $1,920 in December, 2.9% below November's amount of $1,977, according to the MBA's Purchase Applications Payment Index, known as PAPI. 

"There was a slight improvement in home buyer affordability last month as mortgage rates fell by 37 basis points from November," said Edward Seiler, MBA's associate vice president of housing economics and executive director of the Research Institute for Housing America, in a press release.

But as lenders encountered ongoing affordability headwinds and interest-rate spikes throughout 2022, the median went up by $534 for the full year, representing a 38.8% increase. 

MBA's PAPI, introduced last February, measures new monthly mortgage payments relative to income across time, using data from the association's weekly applications survey. The national PAPI score came in at 159.5 in December, down from 164.2 a month earlier, after hitting a series high in October. Higher numbers represent decreased affordability.

A mostly steady decline in interest rates at the end of the fourth quarter led to improvement for home buyers, as purchase amounts in December headed in the opposite direction for a second consecutive month. The median purchase size inched up one percentage point in December to $300,000, Seiler said. But between early November and the end of 2022, the average 30-year conforming rate among MBA lenders decreased from its peak of 7.14% to 6.58%, a trend the association predicts will continue.

"MBA expects both mortgage rates and home-price growth to soften, which along with cooling inflation, should help bring more prospective buyers into the market during the spring home buying season," Seiler said.

Overall affordability improved across loan categories last month, as well as among white, Black and Hispanic households. Conventional loan applications saw the median payment amount decrease to $1.954, a 2% drop month over month from $1,994. But December's number was 35% higher compared to one year earlier, when the median was $1,447.

Mortgage payment sizes for FHA borrowers similarly declined by 1.8% to $1,602 from $1,631 in November. But on an annual basis, the median amount accelerated by almost 50% from 1,070.

States that saw an influx of new residents over the past three years saw the lowest levels of affordability last month, despite seeing lower PAPI scores from November. Nevada, Idaho and Arizona led the country with scores of 259.2, 248.4 and 219.2, respectively. Utah followed at 213.9, and Florida rounded out the "top" five with a reading of 204.7.

The latest index also included a new dataset looking at payments based off of results from MBA's monthly Builder Application Survey. In December, the median monthly payment seen on applications for newly built single-family constructions came in at $2,399, representing an increase of 36% from $1,770 a year earlier.