Some Improvement on the Home Affordability Front

Consumer confidence had fallen for the third straight month by the end of July, according to the Conference Board.

“As the Fed raises interest rates to rein in inflation, purchasing intentions for cars, homes, and major appliances all pulled back further in July,” the Conference Board quoted Lynn Franco, senior director of economic indicators, as having said. “Looking ahead, inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months.”

But maybe, just maybe, things might improve this month. According to the Mortgage Bankers Association, affordability for home purchases improved in 47 states last month. The national median payment for applicants decreased to $1,844 from $1,893 in June.

“Affordability conditions improved modestly in most of the country in July, as slightly lower mortgage rates and a decrease in the median loan amount led to the typical homebuyer’s mortgage payment falling $49 from June,” the MBA’s post quoted Edward Seiler, its associate vice president of housing economics, and executive director of the Research Institute for Housing America. “Homebuyer demand has faltered this summer, as lingering economic uncertainty, high inflation, and still-high mortgage rates caused many prospective buyers to delay their home search. The combination of a strong job market and moderating home-price growth could entice some of these buyers to return in the coming months.”

The drop is according to the Mortgage Bankers Association’s (MBA) Purchase Applications Payment Index (PAPI). “An increase in MBA’s PAPI – indicative of declining borrower affordability conditions – means that the mortgage payment to income ratio (PIR) is higher due to increasing application loan amounts, rising mortgage rates, or a decrease in earnings,” the organization notes. “A decrease in the PAPI – indicative of improving borrower affordability conditions – occurs when loan application amounts decrease, mortgage rates decrease, or earnings increase.”

Perhaps this is good news for the future. However, a $49 drop is, pardon the phrasing, not much to write home about and inflation has worn down people. Plus, home prices were recently up in 80% of metro markets during the second quarter. Slowing house price growth doesn’t matter to most consumers if those price tags don’t soon start going down. And while affordability was improved over the previous month, it was down year over year.