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Homebuyers are losing homes and big deposits as affordability eludes them

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  • Many people who have put thousands of dollars on new homes have canceled their contracts and lost money, per NPR.
  • They told NPR they had no choice because payments had increased since the rate hike.
  • Nationally, new home construction cancellations are up nearly 20% from a year ago.

This is how unaffordable buying a home has become for the average person: some are forgoing thousands of dollars in down payment because they simply can’t finance the home anymore.

Mortgage rates have risen so much in the second half of 2022 that buyers who signed home building contracts with developers late last year and early this year are pulling out because they can’t pay their mortgages. new mortgage payment, NPR reported.

Indeed, the nationwide homebuilder cancellation rate soared to 25.6% in October this year, from just 7.9% in the same month last year, according to John Burns Real Estate Consulting.

For many of those who wrote deposit checks to developers for tens of thousands of dollars — they’ll lose all that money if they don’t close the deal, per NPR. That’s because homebuilders are also feeling the heat — Paul Schwinghammer, president of the Indiana Builders Association, told NPR that many homebuilders can’t afford to give the money back.

Woodworkers Housing Residential construction

A quarter of new real estate contracts were canceled in October, according to John Burns Real Estate Consulting.

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But that means many of those who have already posted bail are in dire straits.

“The seller, he always tells us that 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 down a $25,000 deposit on a $500,000 new home in 2021 and can no longer afford the high-rate mortgage payment, which would cost more than $1,000 more per month.

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

The main reason for the massive spike in home cancellations is simply because mortgage rates have skyrocketed, market analyst John Lovallo told MarketWatch last month. At that time, there were 40% fewer mortgage applications than there were a year earlier, he said.

It makes sense that people will stop taking mortgages as the Federal Reserve pushes rates higher in an effort to curb inflation.

In December last year, the average 30-year mortgage rate was 3.1%, according to Freddie Mac, meaning 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 a 30-year average mortgage rate at 6.33%, according to Freddie Mac, the same house would cost $1,475 per month, according to Insider’s mortgage calculator, a 45% increase in monthly payments.

Phoenix, Arizona.

Some 70% of contracts have been canceled in Phoenix, Arizona, according to Zonda.

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Those NPR spoke to, like Echeverry, said they couldn’t afford the thousands in extra monthly payments or didn’t even know if they would qualify for the same mortgage as last year.

Hotspots like Phoenix have seen an even more drastic cancellation rate

Some of the regions that saw the highest demand in 2021 and early 2022 are actually experiencing the highest cancellation rates.

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

Zonda has seen a 70% cancellation of new home construction in Phoenix, the company’s chief economist Ali Wolf tweeted last month.

These areas saw the biggest price increases in 2021 and early 2022, and are now seeing the fastest declines in house prices as the market becomes more unaffordable and demand declines.



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