Homebuyer Affordability Improves as Purchasing Power Grows

July brought encouraging news for prospective homebuyers: the national median mortgage payment requested in purchase applications fell to $2,127, down from $2,172 in June, signaling improved affordability conditions. This aligns with the Mortgage Bankers Association’s (MBA) Purchase Applications Payment Index (PAPI), which tracks how monthly mortgage payments change over time relative to household income using data from the MBA Weekly Applications Survey (WAS).

“Affordability has strengthened for two straight months, driven by a combination of lower mortgage rates and steady income growth,” said Edward Seiler, MBA’s Associate VP of Housing Economics and Executive Director of the Research Institute for Housing America. “Our forecasts suggest mortgage rates will stay in the 6.5% to 7% range for the remainder of 2025. While still elevated by historical standards, rising incomes and moderating home-price growth should continue to support buyers’ purchasing power in the coming months.”

Understanding the PAPI and Affordability

The PAPI measures borrower affordability through the mortgage payment-to-income ratio (PIR). When the index rises, it indicates that borrowers are dedicating a larger portion of their income to monthly mortgage payments, which signals weaker affordability. Conversely, when loan amounts, mortgage rates, or incomes decrease, the PAPI falls, reflecting an improvement in affordability.

Key Findings from July 2025

• National Median Mortgage Payments: The median mortgage payment for all purchase applicants fell to $2,127, a $45 drop from June and $13 lower than July 2024, marking a 0.6% year-over-year decline.
• FHA and Conventional Loans: FHA applicants’ median payment decreased to $1,865 in July from $1,881 in June but remained above last year’s $1,838. Conventional applicants saw their median payment decline to $2,160 from $2,205 in June, up slightly from $2,140 in July 2024.
• Regional Differences: The states with the highest PAPI, indicating tighter affordability, were Nevada (248.9), Idaho (247.0), Arizona (219.7), Utah (204.7), and Florida (202.3). The lowest PAPI states, where affordability is strongest, were Louisiana (114.4), D.C. (118.1), New York (124.9), Alaska (125.0), and Connecticut (126.4).
• Affordability by Demographics: Homebuyers across major demographic groups saw gains. PAPI for Black households fell from 163.1 to 158.2, for Hispanic households from 152.4 to 147.8, and for White households from 164.8 to 159.8.

On a broader scale, the national PAPI declined 3.0% from June’s 163.7 to 158.7, with annual improvements of 4.1% as rising incomes outpaced modest increases in mortgage payments. Even with median earnings up 3.7% year-over-year, borrowers are paying slightly less in monthly mortgage obligations, a rare win for buyers in a market often dominated by rising costs.

Lower-Payment Mortgages and Market Comparisons

For borrowers seeking lower-payment loans, the 25th percentile mortgage payment dropped to $1,468 in July from $1,500 in June. This decline makes homeownership slightly more accessible to entry-level buyers and first-time purchasers.

Comparing mortgage payments with rental costs, MBA’s national mortgage payment-to-rent ratio (MPRR) fell from 1.48 at the end of Q1 2025 to 1.45 by the end of Q2. Census Bureau data from the Housing Vacancy Survey (HVS) shows the national median asking rent rose to $1,494 in Q2, up from $1,468 in Q1. For lower-payment mortgages, the ratio of median asking rent to 25th percentile mortgage payment fell from 1.02 to 1.00 over the same period, suggesting that in some markets, buying a home may now be roughly equivalent to renting.

Builder-Specific Affordability Trends

The Builders’ Purchase Application Payment Index (BPAPI), which tracks mortgage payments specifically for new-construction purchases, also reflected improving affordability. Median payments fell from $2,273 in June to $2,233 in July, suggesting that even buyers looking at new homes are seeing relief.

Why PAPI Matters

Unlike other affordability measures that rely on multiple assumptions about underwriting standards, the PAPI is calculated directly from actual mortgage application data. This real-time approach provides a clearer view of how changes in mortgage rates, incomes, and loan amounts impact household affordability.

Outlook

Looking ahead, MBA experts expect continued moderate improvement in affordability if income growth persists and home-price appreciation remains manageable. However, even with these gains, monthly mortgage payments are still higher than historical norms, and buyers in high-demand markets will continue to face significant financial pressure.

“Affordability is slowly improving, but it remains a challenge for many households, particularly first-time buyers,” Seiler said. “Policymakers and industry stakeholders should continue monitoring both rates and income trends, as even small changes can have a meaningful impact on access to homeownership.”

With mortgage rates stabilizing and incomes rising, the July data suggests that more Americans may find homeownership within reach, potentially supporting modest growth in purchase applications in the months ahead. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.