AD&C Loans: Rising Rate & Tightening Trends Continue

2023-08-25T07:37:24-05:00

Interest rates on loans for Acquisition, Development & Construction (AD&C) continued to climb in the second quarter of 2023, according to NAHB’s quarterly Survey on AD&C Financing.  Quarter-over-quarter, the contract interest rate increased on all four categories of loans tracked in the AD&C Survey: from 8.50% to 8.62% on loans for land acquisition, from 8.19% to 8.70% on loans for land development, from 8.10% to 8.37% on loans for speculative single-family construction, and from 7.61% to 8.18% on loans for pre-sold single-family construction.  In all four cases, the contract interest rate was higher in 2023 Q2 than it had been at any time since NAHB began collecting the data in 2018.  The rates have been climbing steadily every quarter since the start of 2022 with one minor exception (for land acquisition loans in the third quarter of 2022). Meanwhile, the average initial points charged on the loans actually declined in the second quarter: from 0.81% to 0.52% on land development loans, from 0.85% to 0.81% on land acquisition loans, from 0.79% to 0.71% for speculative single-family construction, and from 0.53% to 0.44% on loans for pre-sold single-family construction. Only in the case of land acquisition, however, was the decline in initial points large enough to offset the contract interest rate and reduce the average effective rate (the rate of return to the lender over the assumed life of the loan, taking both the contract interest rate and initial points into account) paid by developers: from 11.09% in the first quarter to 10.87%.  On the other three categories of AD&C loans, the average effective rate continued to climb, much as it had over the previous year: from 11.88% to 12.67% on loans for land development, from 12.59% to 12.85% on loans for speculative single-family construction, and from 12.01% to 12.67% on loans for pre-sold single-family construction. The NAHB AD&C financing survey also collects data on credit availability.  To help interpret these data, NAHB generates a net easing index, similar to the net easing index based on the Federal Reserve’s survey of senior loan officers.  Plotting the two indices on a single graph lets viewers compare what both the borrowers and lenders are saying about current credit conditions. In the second quarter of 2023, both the NAHB and Fed indices were slightly less negative than they had been in the first quarter, but still solidly in negative territory, indicating net tightening of credit. The NAHB net easing index posted a reading of -35.3, compared to -36.0 in the first quarter.  And the Fed net easing index posted a reading of -71.7, compared to -73.3 in the first quarter.  This marks the sixth consecutive quarter during which both borrowers and lenders have been reporting tightening credit conditions. More detail on current credit conditions for builders and developers is available on NAHB’s AD&C Financing web page. Related ‹ Home Improvement Loan Applications in 2021: A State- and County-Level AnalysisTags: ad&c lending, ad&c loans, ADC, construciton loans, construction lending, credit conditions, economics, home building, housing, interest rates, lending

AD&C Loans: Rising Rate & Tightening Trends Continue2023-08-25T07:37:24-05:00

New Home Sales Increasingly Backed by FHA Loans

2023-08-03T08:24:32-05:00

NAHB analysis of the most recent Quarterly Sales by Price and Financing report reveals that the share of new home sales backed by FHA loans climbed from 12.1% (revised) to 14.0% in the second quarter of 2023. It is the largest share since Q1 2021 but roughly three percentage points lower than the post-Great Recession average. Conventional loans financed 73.7% of new home sales, down one percentage point over the quarter and 2.7ppt, year-over-year. The share of VA-backed sales edged up from 5.2% to 5.4%, a 0.8 ppt decline over the past year. Cash purchases made up 6.5% of new home sales in the second quarter of 2023. The share has declined each of the past two quarters and is down 4.2 ppt over that period. The share of cash purchases has decreased 2.9 percentage points over the past year and has ranged from 4.1% to 10.7% since Q2 2020. Although cash sales make up a small portion of new home sales, they constitute a larger share of existing home sales. According to estimates from the National Association of Realtors, 26% of existing home transactions were all-cash sales in June 2023, up from 25.0% in May and June 2022. Price by Type of Financing Different sources of financing also serve distinct market segments, which is revealed in part by the median new home price associated with each. In the second quarter, the national median sales price of a new home was $416,100. Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $458,100, $346,500, $392,600, and $364,800, respectively. The purchase price of new homes declined over the past year, regardless of means of financing. The largest drop occurred in cash sales prices which fell 20.1% over the year. This is in stark contrast to year-over-year price changes in the second quarter of 2021 and 2022 (see below). Related ‹ Homeownership Rates for Households Aged Under 35 Fell to 38.5%Tags: conventional loans, conventional loans market share, existsing home sales, FHA, FHA loans, finance, home price appreciation, housing finance, lending, mortgage lending, new home cash purchases, new home prices, new home sales, sales by financing, VA

New Home Sales Increasingly Backed by FHA Loans2023-08-03T08:24:32-05:00

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