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Homebuyers are losing out on homes and big deposits as affordability escapes them

Woman going through bills, looking worriedPeople who have put tens of thousands of dollars down on new homes are backing out, and losing their money in the process, NPR reported.

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  • Many people who put thousands down on new homes canceled their contracts and lost money, per NPR.
  • They told NPR they didn’t have a choice because the payments had grown since rates rose.
  • Nationally, new home build cancellations are up nearly 20% from last year. 

This is how unaffordable buying a home has gotten for the average person: some are walking away from thousands of dollars in down payments because they simply can’t finance the house anymore.

Mortgage rates have risen by so much in the 2nd half of 2022 that buyers who inked home building contracts with developers late last year and early this year are backing out because they can’t afford their new mortgage payment, NPR reported

Indeed, the homebuilder cancellation rate nationwide has skyrocketed to 25.6% in October of this year, up from a mere 7.9% during the same month last year, according to John Burns Real Estate Consulting

For many of those that have written deposit checks to developers for tens of thousands of dollars — they’ll lose all that cash if they don’t go through with the deal, per NPR. That’s because home builders are feeling the heat too — Paul Schwinghammer, president of the Indiana Builders Association, told NPR that many home builders can’t afford to give back the cash. 

lumber workers housing homebuildingA quarter of new home contracts were cancelled in October, according to John Burns Real Estate Consulting.

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But this means many who have already put their deposit down are in a desperate situation. 

“The sales guy, he always tells us we’re going to lose the deposit if we don’t buy the house,” Paulo Echeverry, one such person, told NPR. Echeverry is a food truck owner who put a $25,000 deposit on a $500,000 new home in 2021 and now can’t afford the high-rate mortgage payment, which would cost over $1,000 more per month. 

With mortgage rates over 6%, it’s impossible for some to afford a home they could have a year ago 

The biggest reason for the massive uptick in home cancellations is simply because mortgage rates have gone through the roof, John Lovallo, a market analyst told MarketWatch last month. At that time, there were 40% fewer mortgage applications than there were a year prior, he said. 

It makes sense why people would stop taking out mortgages as the Federal Reserve pushes rates up higher in an effort to quell inflation. 

In December of last year, the average 30-year mortgage rate was 3.1%, per Freddie Mac, meaning that the monthly mortgage payment on a $250,000 home would be just over $1,014 per month, according to Insider’s mortgage calculator

Today, with the average 30-year mortgage rate at 6.33%, according to Freddie Mac, the same home would be $1,475 per month, according to Insider’s mortgage calculator, a 45% increase in monthly payments. 

Phoenix, Arizona.Some 70% of contracts were cancelled in Phoenix, Arizona, according to Zonda.

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Those that NPR spoke to, like Echeverry, said they either could not afford the thousands more in monthly payments or they didn’t even know if they would qualify for the same mortgage they would have last year. 

Hotspots like Phoenix have seen an even more drastic rate of cancellations 

Some of the areas that saw some of the greatest demand in 2021 and early 2022 are actually seeing the highest rates of cancellations. 

John Burns’ data for October shows that 45% of contracts were canceled in the southwest, up from 9% a year prior, and in Texas, 39% of contracts were canceled, up from 12% a year prior. 

Zonda recorded a 70% new home build cancellation in Phoenix, the company’s chief economist Ali Wolf tweeted last month

These areas saw the sharpest rise in prices in 2021 and early 2022, and they are now seeing the fastest decline in home prices, as the market becomes more unaffordable and demand decreases. 

Read the original article on Business Insider
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