New buyers face unprecedented unaffordability in housing market

According to the Mortgage Bankers Association, new home buyers in the US are currently facing the least affordable housing market ever. The group's Purchase Applications Payment Index (PAPI) hit a record high in April, indicating declining affordability. A higher reading suggests that borrowers are finding it harder to afford homes due to increasing loan amounts, rising mortgage rates, or a decrease in earnings. Edward Seiler, MBA's associate vice president for housing economics, explained that the situation for new home buyers is the worst since the end of the Great Recession. The national median mortgage payment in April was $2,112, up from $2,093 the prior month. The PAPI gauge reached the highest readings in Idaho, Nevada, Arizona, Florida, and California. As the Federal Reserve began raising interest rates in 2022, mortgage rates on 30-year fixed loans more than doubled from 3% to above 7%. Currently, mortgage rates are hovering just under 7%, and Seiler predicts that they will fall back into the 5% range as tight inventory eases up. He expects demographics to play a role in loosening inventory, as millennials looking for their first home will replace baby-boomer owners who have held property for decades. MBA's findings on affordability were echoed by a Goldman Sachs note that said only four cities in the US housing market are affordable. Out of the 25 largest cities, only St. Louis, Detroit, Chicago, and Baltimore qualify as "affordable," where monthly payments on new mortgages are less than 25% of monthly household income.