Homebuyers are really beginning to feel the squeeze

Median mortgage application monthly payment climbed to $1,653 in February

The one-two punch of higher mortgage rates and escalating home prices reduced homebuyers’ ability to buy homes in February. The trend is also likely to worsen in the coming months.

The national median monthly mortgage payment settled in loan applications increased 8.3%, from $1,526 in January to $1,653 in February, according to a survey published Thursday by the Mortgage Bankers Association. Compared to February 2021, payments jumped 25.6%.

Conventional loans’ national median mortgage payment went from $1,582 in January to $1,749 in February. Meanwhile, FHA loans increased from $1,142 to $1,201 in the same period.

“Low unemployment has spurred strong income growth in early 2022, but homebuyer affordability has decreased due to the quick rise in mortgage rates amidst steep home-price growth,” said Edward Seiler, MBA’s associate vice president for housing economics and executive director at the Research Institute for Housing America, in a statement.

Loan officers on Thursday told HousingWire that rate locks on 30-year fixed-rate mortgages were coming in around 4.75%, about 30 basis points higher than what Freddie Mac’s weekly PMMS report found.

“Together with increased loan application amounts, a mortgage applicant’s median principal and interest payment in February jumped $127 from January and $337 from one year ago,” Seiler said.

The new Purchase Applications Payment Index (PAPI) increased to 146.3 in February, compared to 135.1 in the prior month. In February 2021, the index was 120.

A higher mortgage payment to income ratio means new loans are taking up a larger share of a typical person’s income, due to increasing application loan amounts, rising rates, or a decrease in earnings.

Mortgages comprehend a higher portion of Black households’ income. The group’s index went from 140 in January to 151.6 in February. For Hispanic households, it increased from 125.9 to 136.4 in the same period. For White households, the index grew 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’s national mortgage payment to rent ratio (MPRR) rose from 1.01 in December 2020 to 1.14 in November 2021 and 1.15 in December 2021.

The national median asking rent in fourth-quarter 2021 was $1,207, up 16% compared to the first quarter of 2020.

Given that the Federal Reserve will likely begin hiking rates by 50 basis points as soon as May, affordability concerns are virtually certain to worsen in the months to come.

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