MBA: Mortgage Application Payments Rise in October

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According to the Mortgage Bankers Association’s (MBA) Purchase Applications Payment Index (PAPI), mortgage application payments climbed 3.7% in October to $2,012 from $1,941 in September. As the affordability trajectory continues downward, some relief may come as 30-year mortgage rates fell below 7% in the week ending Nov. 18.

“Prospective home buyers continued to feel the effects of higher mortgage rates in October, with the 70-basis-point jump in rates leading to the typical monthly mortgage payment rising to a new survey high of $2,012,” says Edward Seiler, MBA’s associate vice president, housing economics, and executive director, Research Institute for Housing America.

“Higher mortgage rates are also squeezing the purchasing power of prospective buyers. The median loan amount last month decreased to $295,000—the lowest level since January 2021. Weakening affordability and increased economic uncertainty are expected to slow home buying activity in the final two months of the year.”

Indicative of declining borrow affordability conditions, an increase of MBA’s PAPI means the mortgage payment to income ratio (PIR) is higher because of increasing application loan amounts, mortgage rates, or less income. The national PAPI increased 2.7% to 167.9 in October from 163.6 in September.

Eclipsing the previous high of 164.2 in May 2022, the index has jumped 36% in the first 10 months of 2022 and is up 38.1% compared with October 2021 (121.6). For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment also increased to $1,323 in October from $1,271 the month prior.

The top five states with the highest PAPI were Nevada, 279.7; Idaho, 269.7; Arizona, 241.7; Washington, 219.7; and Utah, 218.9; as the lowest PAPI included Alaska, 113.6; Washington, D.C., 114.2; West Virginia, 115.1; Connecticut, 120.9; and Louisiana,125.6.

While mortgage payments are up by $629 in the first 10 months of the year, there’s some hope for relief as 30-year mortgage rates dropped below 7% in mid-November. “The 30-year fixed-rate mortgage fell for the second week in a row to 6.67% and is now down almost 50 basis points from the recent peak of 7.16% one month ago,” says Joel Kan, MBA’s vice president and deputy chief economist.

“The decrease in mortgage rates should improve the purchasing power of prospective home buyers, who have been largely sidelined as mortgage rates have more than doubled in the past year. As a result of the drop in mortgage rates, both purchase and refinance applications picked up slightly last week. However, refinance activity is still more than 80% below last year’s pace.”

According to the latest MBA weekly survey, mortgage applications for the week ending Nov. 18 increased 2.2% on a seasonally adjusted basis compared with one week earlier. On an unadjusted basis, the Index increased 10% compared with the prior week. The Refinance Index increased 2%, and the seasonally adjusted Purchase Index increased 3% from one week earlier. The refinance share of mortgage activity increased to 28.4% of total applications from 27.6% the previous week.

Kan adds, “With the decline in rates, the ARM share of applications also decreased to 8.8% of loans last week, down from the range of 10% and 12% during the past two months.” From the week prior, the FHA share of total applications decreased to 13.4% from 13.5%; VA share decreased to 10.5% from 10.6%; and the USDA share remained at 0.6%.

For 30-year fixed-rate mortgages with conforming loan balances, the average contract interest rate decreased to 6.67% from 6.90%, with points increasing to 0.68 from 0.56 including the origination fee for 80% loan-to-value ratio (LTV) loans. For 30-year fixed rate mortgages with jumbo loan balances, the average contract interest rate decreased to 6.30% from 6.51%, with points increasing to 0.74 from 0.64, including the origination fee for 80% LTV loans.

For 30-year fixed-rate mortgages backed by the FHA, the average contract interest rate decreased to 6.66% from 6.93%. The average contract rate for 15-year fixed-rate mortgages decreased to 6.08% from 6.27% and 5/1 ARMs increased to 5.87% from 5.73%.

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