Homebuyers across the United States are finally catching a bit of a break after a long stretch of strained affordability, as new data shows mortgage payments are inching downward and incomes are on the rise. According to the Mortgage Bankers Association (MBA), homebuyer affordability improved for the fourth consecutive month in August 2025, offering a sliver of hope to those navigating a still-challenging real estate market.
The MBA’s closely watched Purchase Applications Payment Index (PAPI) revealed that the national median mortgage payment dropped to $2,100 in August, down from $2,127 in July. That’s a $27 dip in just a month, and a $111—or 5%—reduction from the $2,211 median payment seen in May. While the monthly savings might not sound like much at first glance, for many families, every dollar counts—especially when paired with rising earnings. The MBA noted that median earnings increased by 3.2% compared to the previous year, a welcome boost for prospective buyers.
Edward Seiler, the MBA’s associate vice president of Housing Economics, summed up the mood: “Affordability conditions have improved for four straight months, with lower mortgage rates and stronger income growth boosting prospective buyers’ purchasing power.” Seiler added that the MBA expects moderating home-price appreciation and lower rates to “continue to ease affordability constraints and help to boost activity in the housing market.”
So, what exactly is the PAPI, and why does it matter? The index measures new monthly mortgage payments relative to consumer income, offering a snapshot of how much financial strain buyers are facing. A decrease in the PAPI means affordability is improving—either because loan amounts are smaller, mortgage rates are lower, or people are earning more. In August, the national PAPI fell 1.2% to 157.5 from 159.4 in July, reflecting this trend.
Some buyers are seeing even greater relief. For those applying for lower-payment mortgages (think the 25th percentile), the national mortgage payment dropped to $1,445 in August from $1,468 in July. The Builders’ Purchase Application Payment Index, which tracks payments for new construction loans, also showed a decline: the median mortgage payment fell to $2,210 in August from $2,233 in July.
Still, it’s not all sunshine and roses. Despite recent monthly improvements, the national median mortgage payment in August 2025 was still $43, or 2.1%, higher than a year earlier. FHA loan applicants saw their median payment tick down to $1,863 in August from $1,865 in July, but that’s up from $1,817 in August 2024. Conventional loan applicants experienced a similar pattern, with payments dropping to $2,112 in August from $2,160 in July, but still up from $2,056 a year ago.
Regional differences remain stark. The top five states with the highest PAPI in August 2025 were Idaho (256.5), Nevada (241.9), Arizona (214.0), Rhode Island (208.3), and Utah (205.0)—suggesting buyers there are still under considerable pressure. On the flip side, Alaska (115.1), Louisiana (115.3), D.C. (117.2), Connecticut (121.7), and New York (123.6) had the lowest PAPI scores, signaling comparatively easier affordability conditions.
There’s also good news for equity in homeownership. The MBA reported that affordability increased for Black, Hispanic, and white households alike. For Black households, the national PAPI decreased from 158.9 in July to 156.9 in August; for Hispanic households, it dropped from 148.5 to 146.6; and for white households, it fell from 160.5 to 158.5.
But what’s happening on the interest rate front? According to The Mortgage Reports, mortgage rates inched up a few basis points on October 14, 2025, adding to the week’s modest gains. The average 30-year fixed mortgage rate stood at 6.397%, while the 15-year fixed rate was 5.682%. Adjustable-rate mortgages (ARMs) offered slightly lower starting rates, with the 5/1 ARM averaging 5.624% that morning. These numbers are up from the historic lows seen in 2021 but remain below the sky-high rates of the early 1980s.
Market forces continue to play a key role. The yield on 10-year Treasury notes rose slightly to 4.045% from 4.036%, a move that typically nudges mortgage rates higher. Meanwhile, oil prices dipped to $58.39 a barrel, gold prices climbed to $4,150 an ounce, and the CNN Business Fear & Greed Index fell to 29 out of 100—indicating more cautious investor sentiment, which can put downward pressure on rates.
Economic uncertainty lingers, though. The NFIB Small Business Optimism Index dropped to 98.8 in September from 100.8 in August, reflecting concerns about inflation, slower sales, and labor challenges. Bill Dunkelberg, chief economist at NFIB, commented, “Although uncertainty is high, small business owners remain resilient as they seek to better understand how policy changes will impact their operations.” Federal Reserve officials, including Vice Chair Michelle Bowman and Chair Jerome Powell, were scheduled to speak on October 14, 2025, with markets watching closely for signals about future monetary policy.
Looking ahead, expert forecasts suggest that mortgage rates could ease further. Fannie Mae predicts that 30-year fixed rates will hover around 6.4% in the last quarter of 2025, gradually dropping to 5.9% by the end of 2026. The MBA’s forecast is similar, expecting rates to stay near 6.5% in late 2025 and remain steady at 6.4% through 2026. Rick Sharga, CEO at CJ Patrick Company, noted, “Further slowing in the U.S. economy and a weakening jobs market could force the Fed’s hand to cut further and faster, which would likely lead to lower mortgage rates as we approach the end of the year.”
Freddie Mac’s October 9 report put the weekly 30-year fixed mortgage rate average at 6.30%, down just four basis points from the previous week. While these changes might seem minor, they’re a sign of a market in flux and can make a difference for buyers on the edge of affordability.
For those in the market, experts advise shopping around. As The Mortgage Reports points out, “A good mortgage rate is one that aligns with current market trends and your financial situation.” Factors like credit score, down payment, and loan type all influence the rate you’ll ultimately get. And with the possibility of further rate drops on the horizon, buyers face the classic conundrum: should you lock in your rate now or wait for potentially better deals?
Ultimately, the recent improvements in affordability—driven by modestly lower mortgage payments and rising incomes—are giving homebuyers a bit more room to breathe. While the road ahead is still uncertain, especially with economic headwinds and regional disparities, the latest data offers a rare glimmer of optimism for those chasing the American dream of homeownership.
