Credit for Builders and Developers Tightens in the First Quarter

2022-05-13T07:21:08-05:00

During the first quarter of 2022, credit became tighter on loans for Acquisition, Development & Construction (AD&C) according to NAHB’s Survey on AD&C Financing.  The NAHB survey produces a net easing index  that summarizes the change in credit conditions, similar to the net easing index constructed from the Federal Reserve’s survey of senior loan officers (SLOOS).  In the first quarter of 2022, both the NAHB and Fed indices were negative, indicating tightening credit conditions.   The NAHB index stood at -2.3 while the Fed index was -4.7, compared to +9.7 and +10.3, respectively, in the fourth quarter of 2021.  This is the first time that both measures show tightening credit conditions since mid-2020. The NAHB net easing index uses information from questions that ask builders and developers if availability of credit has gotten better, worse, or stayed the same since the previous quarter.  In the first quarter of 2022, 6 percent of the NAHB builders said availability of credit for land acquisition had gotten better, while 9 percent said it had gotten worse.  For land development, 3 percent said credit conditions improved, while 14 percent of the respondents indicated that it had gotten worse.  Finally, 11 percent of builders reported that the availability of credit for single-family construction had improved, compared to only 4 percent who said it had gotten worse. One way lenders reduced availability of credit in the first quarter of 2022 was by lowering  Loan-to-Value (LTV) and Loan-to-Cost (LTC) ratios.  In the NAHB survey, the average LTV on all four categories of AD&C loans declined between the fourth quarter of 2021 and the first quarter of 2021: from 70.9 to 64.4 percent on loans for land acquisition, from 72.4 to 67.7 percent on loans for land development, from 76.7 to 74.1 percent on loans for speculative single-family construction, and from 77.4 to 76.0 percent on loans for pre-sold single-family construction. Similarly, the average LTC declined from 67.6 to 66.9 percent on loans for land acquisition, from 75.9 to 74.5 percent on loans for land development, from 86.3 to 85.0 percent on loans for speculative single-family construction, and from 90.0 to 86.7 percent on loans for pre-sold single-family construction. As of the first quarter, rising interest rates  recently reported on other types of loans were not yet consistently evident in the NAHB AD&C survey.   The average effective rate (based on  rate of return to the lender over the assumed life of the loan taking both the contract interest rate and initial fee into account) decreased from 6.43 in the fourth quarter of 2021 to 6.32 percent in the first quarter of 2022 on loans for land acquisition, but increased from 7.14 to 7.85 percent on loans for land development. For pre-sold single-family construction, the average effective rate decreased from 7.94 to 7.38 percent and from 8.10 to 7.90 percent on loans for speculative single-family construction. Related ‹ Building Materials Prices Move Higher, Up 19% Year-over-YearTags: ad&c lending, ad&c loans, ADC, construciton loans, construction lending, credit conditions, economics, home building, housing, interest rates, lending, loan-to-cost, loan-to-value, LTC, LTV, single-family

Credit for Builders and Developers Tightens in the First Quarter2022-05-13T07:21:08-05:00

Credit for Builders & Developers Eases at the End of 2021

2022-02-17T12:19:27-06:00

In the fourth quarter of 2021, effective interest rates decreased on all four categories of loans tracked in NAHB’s Survey on Acquisition, Development & Construction (AD&C) financing.  The average effective rate (based on  rate of return to the lender over the assumed life of the loan taking both the contract interest rate and initial fee into account) decreased from 6.50 in the third quarter of 2021 to 6.43 percent in the fourth quarter of 2021 on loans for land acquisition, from 8.33 to 7.14 percent on loans for land development, from 8.55 to 7.94 percent on loans for pre-sold single-family construction, and from 8.37 to 8.10 percent on loans for speculative single-family construction. Changes in the effective rate may be due to changes in either the contract interest rate, or in the initial points charged on the loan.  On loans specifically for land development, both the contract rate and the points declined in the fourth quarter—from 5.24 to 4.72, and from 0.89 to 0.67 percent, respectively.  On the other three categories of AD&C loans, the contract interest rate increased, but was more than offset by a reduction in points.   On land acquisition loans, the contract rate increased from 4.74 to 4.89 percent while the initial points decreased from 0.88 to 0.68.  On speculative single-fmily construction loans, the contract rate increased from 4.85 to 4.86 percent while the points decreased from 0.87 to 0.68. And on loans for pre-sold single-family construction, the contract rate increased from 4.49 to 4.52 percent while the points decreased from 0.77 to 0.68. The NAHB survey also produces a net easing index that summarizes the change in credit conditions on AD&C loans, similar to the net easing index constructed from the Federal Reserve’s survey of senior loan officers (SLOOS).  In the fourth quarter of 2021, both the NAHB and Fed indices were positive, indicating net improved availability of credit, with the NAHB index indicating somewhat more easing.  The NAHB index stood at 21.3 while the Fed index was 10.3.  These results from the third quarter were 11.0 for NAHB index and the Fed index was 9.4.  More information about the Fed’s SLOOS is available in a February 11 Eye on Housing post. The NAHB net easing index uses information from questions that ask builders and developers if availability of credit has gotten better, worse, or stayed the same since the previous quarter.  In the fourth quarter of 2021, 29 percent of the NAHB builders said availability of credit for land acquisition had gotten better, compared to only 4 percent who said it had gotten worse.  For land development, 25 percent said credit conditions improved, while none of the respondents indicated that it had gotten worse.  Finally, 25 percent of builders reported that the availability of credit for single-family construction had improved, compared to 11 percent who said it had gotten worse. The relatively favorable cost and availability of AD&C loans helps explain the strength of builder confidence at the end of the year (before it began to edge downward at the beginning of 2022). Related ‹ Single-Family Built-for-Rent Growth in 2021Tags: ad&c lending, ad&c loans, ADC, construciton loans, construction lending, credit conditions, economics, home building, housing, interest rates, lending, single-family

Credit for Builders & Developers Eases at the End of 20212022-02-17T12:19:27-06:00

About My Work

Phasellus non ante ac dui sagittis volutpat. Curabitur a quam nisl. Nam est elit, congue et quam id, laoreet consequat erat. Aenean porta placerat efficitur. Vestibulum et dictum massa, ac finibus turpis.

Recent Works

Recent Posts