The American dream of home ownership is becoming less and less attainable due to soaring mortgage rates and house prices, according to a new Housing Affordability Index from the Mortgage Bankers Association (MBA).
The Purchase Demands Payment Index (PAPI) tracks changes in median mortgage payments relative to monthly income. The national PAPI increased by 8.3% between January and February 2022, meaning that a homebuyer’s new monthly payment now represents a larger share of their income than just a month ago.
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“Low unemployment spurred strong income growth at the start of 2022, but homebuyer affordability has declined due to rapidly rising mortgage rates amid strong house price growth,” he said. said MBA Associate Vice President Edward Seiler.
Keep reading to learn more about mortgage affordability in this competitive spring housing market, as well as how to keep your housing payments within your budget. One strategy is to find the lowest mortgage purchase or refinance rate for your situation by comparing offers on Credible’s home loan marketplace.
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Rising Rates and Current Prices Impact Housing Affordability for Homebuyers
Average 30-year mortgage rates rose 73 basis points (or 0.73%) in the first two months of 2022 alone, closing February at 4.15%, according to MBA data. Mortgage interest rates continued to rise throughout March to currently stand at 4.5%, the highest since 2019.
The median sale price of existing homes also rose 15% annually in February — to $357,300 from $310,600 just a year ago, according to the National Association of Realtors (NAR). February marked 120 consecutive months of year-over-year median home price increases.
Due to soaring rates and home values, the affordability of mortgages has dropped for new buyers. The average monthly payment for mortgage applicants was $1,653 in February, down from $1,526 in January and just $1,316 a year ago. This translates into a significant increase of 8.3% per month and 25.6% per year.
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Although buyers don’t have much control over rising home values, it may be possible to find a more competitive mortgage rate. If you’re buying a home in 2022, you might want to work on building your credit score and lowering your debt-to-equity ratio (DTI) to get the lowest rates available.
Another way to ensure you get a good rate is to shop around with multiple mortgage lenders. Potential buyers should compare rates from at least three lenders to find the best possible deal. You can compare mortgage rates on Credible for free without affecting your credit score.
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Mortgage payments are growing faster than rents, but they’re protected from inflation
Asking rents exploded from the start of 2020 to the end of 2021, “even outpacing the strong growth in mortgage application payments during this period,” Seiler said. However, the increase in mortgage payments over the past two months has closed the affordability gap so far in 2022.
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Despite the increased monthly payments, buying a home may still offer more financial incentives than renting long term. This is because rental prices typically rise with inflation, which is currently rising at the fastest rate in 40 years. On the other hand, homebuyers can lock in a fixed mortgage payment for a longer period.
If you’re thinking of moving from renting to owning, you can use Credible’s mortgage calculator to estimate your monthly payments. You can also browse current mortgage rates in the table below and on Credible.
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