Volume of Residential Construction Loans Falls in Q4 2024

2025-03-21T08:21:35-05:00

Higher interest rates and tight financial lending conditions have led to a decline in loans for new home construction. The total volume of acquisition, development, and construction (AD&C) loans outstanding from FDIC-insured institutions fell 1.02% to $490.7 billion, the third straight quarterly decline. The level of 1-4 residential construction loans, which include loans for the construction of single-family homes and townhomes, has fallen for seven consecutive quarters. Coincidingly, the volume of 1-4 family residential construction has moved to its lowest level since 2021. The volume of 1-4 family residential construction and land development loans totaled $89.5 billion in the fourth quarter, down 7.6% from one year ago. This is also down after reaching a recent high of $105.0 billion in the first quarter of 2023. To end the year, a plurality of outstanding loans was held by smaller banking institutions, those with $1 billion-$10 billion in total assets, totaling $30.2 billion (33.7%). Banks with $10 billion- $250 billion in assets held the second largest share at $29.8 billion (33.3%), followed by the smallest banks with under $1 billion in assets, holding $20.7 billion (23.1%). The largest banks with over $250 billion in assets held the smallest amount at $8.8 billion (9.8%). Notably, 56.9% of 1-4 family residential construction and development loans were held by banks with under $10 billion in assets to end 2024. Small community banks play a vital role ensuring financial and lending opportunities for builders across the United States. The data below shows the year-ending level of outstanding 1-4 family residential construction loans broken out by bank asset sizes. All Other Real Estate Development Loans Excluding 1-4 family residential construction loans, the level of all other outstanding real estate construction loans totaled $394.6 billion and was down 2.2% from the previous year This is also down from a peak in the second quarter of 2024 of $404.2 billion. The banks that held the most loans were those with total assets between $10-$250 billion totaling $163.2 billion (41.4%) to end 2024. Banks with $1-$10 billion in assets held $107.1 billion (27.3%), banks with more than $250 billion in assets held $86.6 billion (21.9%) and the smallest banks, those with less than $1 billion in assets, held $37.7 billion (9.6%). For the end of 2024, larger banks ($10 billion or more in assets) had more activity in the other construction and land development loan arena compared to 1-4 family residential construction holding 63.3% of the outstanding volume. It is worth noting, the FDIC data represent only the stock of loans, not changes in the underlying flows, so it is an imperfect data source. Nonetheless, lending remains much reduced from years past. The current amount of existing 1-4 family residential AD&C loans now stands 56% lower than the peak level of residential construction lending of $204 billion reached during the first quarter of 2008. Alternative sources of financing, including equity partners, have supplemented this capital market in recent years. Discover more from Eye On Housing Subscribe to get the latest posts sent to your email.

Volume of Residential Construction Loans Falls in Q4 20242025-03-21T08:21:35-05:00

Credit for Builders Tightens, Cost Results Mixed

2025-02-14T08:14:36-06:00

Borrowers and lenders agreed that credit for residential Land Acquisition, Development & Construction (AD&C) tightened further in the fourth quarter of 2024, according to NAHB’s survey on AD&C Financing and the Federal Reserve’s survey of senior loan officers. The net easing index derived from the NAHB survey posted a reading of -16.3, while the similar index derived from the Fed survey posted a reading of -9.5 (the negative numbers indicating that credit tightened since the previous quarter). Although the additional net tightening in the fourth quarter was modest (as indicated by negative numbers much closer to 0 than -100), this marks the twelfth consecutive quarter during which both surveys reported net tightening of credit for AD&C. According to the NAHB survey, the most common ways in which lenders tightened in the fourth quarter were by lowering the loan-to-value or loan-to-cost ratio (reported by 72% of builders and developers) and reducing the amount they are willing to lend (61%).  Additional information from the Fed’s survey of lenders—including measures of demand and net easing for residential mortgages—is discussed in an earlier post. For the second consecutive quarter, the contract interest rate declined on all four categories of loans tracked in the NAHB AD&C survey.  In the fourth quarter of 2024, the average contract interest rate declined from 8.50% in 2024 Q3 to 8.48% on loans for land acquisition, from 8.83% to 8.28% on loans for land development, from 8.54% to 8.34% on loans for speculative single-family construction, and from 8.11% to 7.75% on loans for pre-sold single-family construction. In addition to the contract rate, initial points charged on the loans can be an important component of the overall cost of credit, especially for loans paid off as quickly as typical single-family construction loans. In the fourth quarter, trends on initial points were mixed. The average points declined on loans for land acquisition, from 0.77% in 2024 Q3 to 0.55%. However, average points increased quarter-over-quarter on loans for land development (from 0.68% to 0.75%), pre-sold single-family construction (from 0.26% to 0.67%) and speculative single-family construction (from 0.49% to 0.64%). Not surprisingly, the conflicting trends described above resulted in mixed results for the overall cost of AD&C credit, as indicated by the average effective interest rate (which takes both the contract rate and initial points into account).  In the fourth quarter of 2024, the average effective rate declined  on loans for land acquisition from 11.17% in 2024 Q3 to 10.79%, and on loans on land development from 12.82% to 12.12%.  Meanwhile, the average effective rate increased on loans for speculative single-family construction from 12.61% to 12.86%, and on loans for pre-sold single-family construction from 12.03% to 12.98%. Even after these disparate changes between 2024 Q3 and 2024 Q4, the average effective interest rates on all four categories of AD&C loans were at least slightly lower in 2024 Q4 than they were in 2024 Q2. More detail on credit conditions for residential builders and developers is available on NAHB’s AD&C Financing Survey web page. Discover more from Eye On Housing Subscribe to get the latest posts sent to your email.

Credit for Builders Tightens, Cost Results Mixed2025-02-14T08:14:36-06:00

Residential Construction Loan Volumes Decline Over the Third Quarter

2025-01-10T10:21:23-06:00

The total volume of outstanding acquisition, development, and construction (AD&C) loans made by FDIC-insured institutions fell for the third consecutive quarter during the third quarter of 2024 to a volume of $490.7 billion, down from $495.8 billion in the second quarter. Interest rates remained higher over the third quarter, as the Fed issued its first rate cut at the end of the quarter in September. Future AD&C lending conditions are poised to improve as the Fed continues its easing cycle over the next year despite potential headwinds of higher Government deficits and economic uncertainty. The volume of 1-4 family residential construction and land development loans totaled $90.8 billion in the third quarter, down 8.4% from one year ago. This year-over-year decline marked the fifth straight quarter where the total volume of outstanding loans declined compared to a year prior. All other real estate development loans totaled $399.9 billion in the third quarter, down $4.3 billion from the previous quarter. It is worth noting, the FDIC data represent only the stock of loans, not changes in the underlying flows, so it is an imperfect data source. Lending remains much reduced from years past. The current amount of existing 1-4 family residential AD&C loans now stands 55% lower than the peak level of residential construction lending of $204 billion reached during the first quarter of 2008. Alternative sources of financing, including equity partners, have supplemented this capital market in recent years. While the volume of 1-4 family residential AD&C loans fell during the third quarter, the volume of past due and nonaccrual residential AD&C loans rose above $1 billion for the first time since 2014. A majority of this outstanding total was made up of loans in nonaccrual status (typically a loan where the lender does not expect to receive payment) which totaled $505.9 million. The outstanding loan balance for those 30-89 days past due was $491.5 million and loans 90 days or more past due totaled $65.4 million. As a share of the total outstanding stock of 1-4 family residential AD&C loans ($90.8 billion), past due and nonaccrual loans ($1.0 billion) made up 1.2% of the outstanding stock of loans. Discover more from Eye On Housing Subscribe to get the latest posts sent to your email.

Residential Construction Loan Volumes Decline Over the Third Quarter2025-01-10T10:21:23-06:00
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