New mortgage payments jump 8% in February amid soaring rates, home prices: MBA

The American dream of homeownership is becoming less attainable due to surging mortgage rates and home prices, according to a new housing affordability index from the Mortgage Bankers Association (MBA).

The Purchase Applications Payment Index (PAPI) tracks the change in median mortgage payments relative to monthly income. The national PAPI increased 8.3% between January and February 2022, which means a homebuyer's new monthly payment now takes up a larger share of their income compared to just one month ago.

HERE'S WHERE AMERICANS MOVED TO — AND AWAY FROM — IN 2021

"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," MBA Associate Vice President Edward Seiler said.

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 shop around for the lowest mortgage purchase or refinancing rate for your situation by comparing offers on Credible's home loan marketplace.

MORTGAGE RATES SURGE A QUARTER PERCENTAGE POINT THIS WEEK: FREDDIE MAC

Rising rates, list prices impact housing affordability for homebuyers

Average 30-year mortgage rates spiked by 73 basis points (or 0.73%) in the first two months of 2022 alone, closing out February at 4.15%, MBA data shows. Mortgage interest rates continued to rise throughout March to 4.5% currently, which is the highest they've been since 2019.

The median sales price for existing homes also increased 15% annually in February — up to $357,300 compared with $310,600 just one year ago, according to the National Association of Realtors (NAR). February marked 120 consecutive months of year-over-year median home price increases.

As a result of surging rates and home values, mortgage affordability has plummeted for new homebuyers. The average monthly payment among mortgage applicants was $1,653 in February, up from $1,526 in January and just $1,316 one year ago. That translates to a meaningful increase of 8.3% monthly and 25.6% annually.

WHAT YOU NEED TO KNOW BEFORE MAKING A DOWN PAYMENT ON A HOUSE

While homebuyers don't have much control over rising home values, it may be possible to work on finding a more competitive mortgage rate. If you're buying a home in 2022, you may want to work on building your credit score and lowering your debt-to-income ratio (DTI) to qualify for the lowest rates available.

Another way to ensure you're getting a good rate is by shopping around with multiple mortgage lenders. Potential buyers should compare rates from at least three lenders to find the best offer possible. You can compare mortgage rates on Credible for free without impacting your credit score.

DOES HAVING STUDENT LOAN DEBT MAKE IT HARDER TO BUY A HOUSE?

Mortgage payments are rising faster than rent, but they're protected from inflation

Asking rents ballooned from early 2020 through the end of 2021, "even outpacing the steep growth in mortgage application payments over that period," Seiler said. However, the rise in mortgage payments over the past two months has closed the affordability gap so far in 2022.

THE 10 BEST METRO AREAS FOR FIRST-TIME HOMEBUYERS IN 2022

Despite rising monthly payments, buying a home may still offer more financial incentives than renting in the long term. That's because rent prices typically increase with inflation, which is currently growing at the fastest pace in 40 years. On the other hand, homebuyers are able to lock in a fixed mortgage payment for a longer period of time.

If you're considering making the transition from renter to homeowner, 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.

WILL A NEW CREDIT CARD AFFECT MY MORTGAGE APPLICATION?

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.