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M REPORT | 49 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA Median Home Payments Feeling Impact of Economic Forces "The ongoing affordability hit of higher home prices and fast-rising mortgage rates led to a slowdown in purchase applications in May," said Edward Seiler, the MBA's Associate VP. W hen it comes to affordability, any change that is not down can be seen as a good thing, especially after affordability has done nothing other than go down for the last several months. According to the Mortgage Bankers Association (MBA), the na- tional median payment applied for by mortgage applicants remained essentially flat, only rising to $1,897 from $1,889 in April, an $8 change. This data comes to us from the MBA's Purchase Applications Payment Index (PAPI) which measures how new monthly mortgage payments vary across time—relative to income—us- ing data from MBA's Weekly Applications Survey (WAS). "The ongoing affordability hit of higher home prices and fast-rising mortgage rates led to a slowdown in purchase applications in May. While the median principal and interest payment only increased $8 from April, a typical borrower is paying $514 more through the first five months of 2022—a jump of 37.1%," said Edward Seiler, MBA's Associate VP of Housing Economics, and also the Executive Director of the Research Institute for Housing America. "Inflationary pressures and rates above 5% are both headwinds for the housing market in the coming months. MBA's new forecast anticipates that sales of new and existing homes will fall below 2021 levels." The national PAPI increased 0.4% to 163.4 in May from 162.8 in April, meaning payments on new mortgages take up a larger share of a typical person's income. Compared to May 2021 (120.6), the index jumped 35.5%. For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment increased 0.36% to $1,241 from $1,236 in April. Other high-level takeaways from the report include: • The national median mortgage payment was $1,897 in May, up from $1,889 in April and $1,736 in March. Payments have increased $513 (37.1%) in the first five months of the year. • The national median mortgage payment for FHA loan applicants was $1,430 in May, up from $1,374 in April and $1,005 in May 2021. • The national median mortgage payment for conventional loan applicants was $1,960, down from $1,967 in April but up from $1,394 in May 2021. • The top five states with the highest PAPI were: Idaho (253.0), Nevada (249.7), Arizona (233.5), Utah (210.9), and California (206.9). • The top five states with the low- est PAPI were: Washington, D.C. (99.7), Alaska (102.6), Connecticut (111.2), West Virginia (113.0), and Oklahoma (118.5). • Homebuyer affordability decreased slightly for Black households, with the national PAPI increasing from 165.9 in April to 166.6 in May. • Homebuyer affordability decreased slightly for Hispanic households, with the national PAPI increasing from 155.8 in April to 156.4 in May. • Homebuyer affordability decreased slightly for White households, with the national PAPI increasing from 163.6 in April to 164.3 in May. Factors Driving the Current and Future Rental Market TransUnion's latest migration patterns show more people leaving the Rust Belt and Northeast in favor of warmer, Southern Atlantic and Mountain states, like Arizona and Texas. O ut-of-state applicants for rental properties increased 42% from 2020 to 2021, according to a data analysis from TransUnion. In that same period, rental applications in rural areas increased 28%, while urban rental application volume rose just 10%. The primary driver of these trends appears to be rising housing costs and the widespread availability of remote work, which began during the COVID-19 pandemic. "With remote work firmly in the norm, we've seen renters actively seeking new locations that better suit their budgets and lifestyles," said Maitri Johnson, VP of Tenant and Employment Screening at TransUnion. "While many are going out-of-state to sunnier environments, we're also seeing a preference for rural areas and exurbs that have more space and a lower cost of living, but also a relative proximity to cities and airports." Texas saw the largest increase between 2020 and 2021, with more than 310,000 new residents. Meanwhile, New York had the highest decrease, losing more than 319,000 residents. Generally, the cross- state migration patterns show more people leaving the Rust Belt and Northeast in favor of the Southern Atlantic and Mountain states, as well as Arizona and Texas. Overall occupancy of U.S. rentals reached a record 98% in January 2022. This may have been driven in part by an influx of homeowners who capitalized on their home equity by selling while housing prices were at an all-time high and renting until valuations come back down. When looking at rental applications from 2020-2021, there was a 37% increase in applicants who had sold their home within the past year and a 16% increase among applicants with an outstanding mortgage. The higher costs for home purchases simultaneously kept many younger adults from becoming first-time homebuyers. However, the same inflationary trends have impacted affordability in the rental market as well. Rent prices increased 14% between 2020 and 2021 while the median income of applicants has only increased 6% over that same time. Predictably, delinquencies on rent payments have increased. Whereas on-time rent payments were at 96% in January 2020, they had dropped to 92% at the end of 2021. "Demand is clearly very strong right now, which is all the more reason for a thorough rental application screening process with an emphasis on income and debt ratios and their effect on affordability," Johnson said. There are signs that the housing market is cooling down as the Fed has bumped up interest rates several times already this year, which means renters can expect to continue renting until economic stability is regained. TransUnion analysis suggests immigrants may well sustain the rental market's high demand over the long term. Citing data from the U.S. Census Bureau and Joint Centers for Housing Studies of Harvard University, the report provides highlights about this population's participation in the rental market. In 2022, immigrants represent more than 14% of the total U.S. popula- tion. That percentage is expected to grow through 2060, when the U.S. Census Bureau projects immigrants to represent 17% of the nation's population. "Because people who immigrate to the U.S. tend to remain renters for long periods, there is likely a compounding effect to this sustained increase," Johnson said. "The current demand resulting from the housing market may subside as home prices come down, but this population will likely keep rental demand elevated over the coming decades."