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Rising mortgage rates are wreaking havoc in the housing market. Some homebuyers are losing big deposits, like $10,000 or $20,000 or more, because they can't afford the homes they agreed to buy. Builders say if too many people back out, that's damaging to their business. NPR's Chris Arnold reports.
CHRIS ARNOLD, BYLINE: Paulo Echeverry runs a food truck outside of Orlando.
PAULO ECHEVERRY: This is a Colombian food truck. So now we're cooking, like, Colombian sausage.
ARNOLD: He runs the food truck with his wife, Dahianara Lopez, who's working the grill.
DAHIANARA LOPEZ: Yeah, we work together every day, of course, seven days a week. Yeah.
ARNOLD: And doing that over a few years, they managed to save up a down payment for a home.
LOPEZ: We think that renting is, like, we are wasting money, you know? So we want to buy a house.
ARNOLD: Late last year, they agreed to buy a new home before it was built yet for about $500,000. They signed a contract and put down a $25,000 deposit. But since then, we've had the biggest jump in interest rates in 40 years. That adds upwards of $1,100 a month more to the mortgage payment they'd have. They've been scared that they can't afford that because they're on the hook for that big deposit.
ECHEVERRY: The sales guy, he always tell us now, daily...
LOPEZ: Lose the deposit.
ECHEVERRY: Yeah, we're going to lose the deposit if we don't buy the house. Even the area sales manager, she told me, too, that we're going to lose our money.
ARNOLD: And some people have already lost their money. Karen Jensen works as a school nurse in Tigard, Ore. She and her husband wanted a bigger house for them and their kids.
KAREN JENSEN: We put just a little over 15,000 down as a deposit.
ARNOLD: But they decided to back out of buying it because of the higher rates. She says the builder kept their deposit. That's even though prices in the area had risen a lot while it was getting built, and so she saw the company put the house back up for sale for $90,000 more than it was going to sell it to her for. And she says it quickly went under agreement and is listed as sold on the builder's website.
JENSEN: It felt really gross to see that. Like, OK, so not only do you got our earnest money - our 15 grand - plus they will get more money at the end of the day in general - that felt kind of icky to us.
ARNOLD: Homebuilders don't seem too eager to talk about buyers losing their deposit money. The National Association of Homebuilders declined an interview. The Florida Home Builders Association didn't respond. But the president of the State Builders Association in Indiana, Paul Schwinghammer, talked to us. First, he said if a buyer backs out, but a builder can turn around and sell the house for a lot more money...
PAUL SCHWINGHAMMER: If the builder profited from reselling that house from what he was going to, he at least ought to give the deposit back to that customer. That's just an ethical decision on my part. That's not saying the law says I have to do that.
ARNOLD: Builders are generally not required by law to return deposits if the buyer backs out. But more broadly speaking, he says, you have to realize that right now this massive increase in mortgage rates has buyers and builders both scrambling.
SCHWINGHAMMER: You know, most builders are going to be very cautious about just blanket giving a deposit back out of the goodness of their hearts.
ARNOLD: That's because many buyers are getting cold feet. A new survey finds that buyer cancellation rates nationally are three times higher than normal. So Schwinghammer says builders need to push buyers to follow through on their contract and buy the houses. Because it's a big risk, especially for a smaller builder, to get stuck with a lot of unsold houses.
SCHWINGHAMMER: If there becomes this word on the street that Bob the Builder is giving everybody their money back, Bob's - they're going to be out of business pretty quick.
ARNOLD: But he says buyers who really can't afford it anymore because they can't even qualify for a mortgage now at this big jump in rates, he thinks most builders are giving those people their deposit money back.
SCHWINGHAMMER: The builder isn't in the business to keep people's deposits, right? They're in a business to build homes, to build a good relationship with their customers so they have more customers down the road.
ARNOLD: But not all builders. A recent survey of 100 companies finds that at least some are keeping deposits even if people can't qualify for a loan with these higher rates. Back in Orlando, Paulo Echeverry and Dahianara Lopez have been very worried that they won't qualify because the sales guy said, if that happens, they'll lose their $25,000 deposit.
LOPEZ: We work every day very hard and everything to buy a house. You know, it was our dream. But right now it's completely...
ECHEVERRY: Yeah, a nightmare.
LOPEZ: ...A nightmare.
ARNOLD: The company, called Dream Finders Homes, declined an interview. But after NPR contacted the company, it said that the couple would not lose their deposit. In a statement, the company says, generally people who don't buy a home can get a credit for their full deposit to buy one in the future. And the couple says the company is now offering to spend about $10,000 to buy down their interest rate. Some builders are doing this since a lower rate helps people to be able to go ahead and purchase the homes. Back working at the food truck, the couple says that is a big relief.
ECHEVERRY: Yeah, actually, yes. Because now, if we don't qualify, we're not going to lose our deposit. So that's pretty good. And the company wants to work with us to close our house.
ARNOLD: It looks like the company can bring your interest rate down from around 7% to just below 6%, which will still be a stretch.
LOPEZ: Because it's a little bit high for us. But I feel excited, also, to get the house. Because it's our dream.
ARNOLD: Chris Arnold, NPR News.
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