Builders’ Access to Credit

Credit for home builders remains extremely tight. An NAHB quarterly survey of home builders assesses the availability of new production credit as well as the conditions applied to existing lines of credit and outstanding loans.  In all cases, the tight conditions that prevailed in 2008 and early 2009 continue with only the slightest change in availability for construction loans.

The quarterly survey asks about availability of new land acquisition, land development and single family construction loans (AD&C). The results generate a diffusion index similar to the Federal Reserve’s Senior Loan Officer Survey of banks assessment of credit conditions for Commercial Real Estate loans, the category of bank loans that includes home builders AD&C loans. As demonstrated in the graphic below, both indexes showed similar tightening during the credit tightening period from early 2006 through mid-2008.  However, the Fed survey has since shown an end to tightening whereas the NAHB survey shows continued tightness.  The Fed’s index has returned to the early 2006 level while the NAHB home builder index has fallen back only to levels last seen in late 2007.


In a recent monthly survey, NAHB posed some of the same questions asked on the quarterly survey to a wider panel of home builders that allows for greater geographic analysis.  Responses of 420 builders from around the country were broken down into two halves: those from states beginning to see some recovery and those from states with continued housing market stress. States were categorized by four metrics: home owner vacancy rates relative to the historic norm for each state (the lower the rate relative to their historic average the better the market); mortgage foreclosure rates relative to the US (the lower the state foreclosure rate relative to the US the better the market); population change relative to the US (the greater population growth relative to the US the better the market) and unemployment relative to the US (the lower state unemployment relative to the US the better the market).  The four independent indicators (averages for each metric and each half are shown in table at the end of this paper) were each ordered from best to worse and grouped by deciles.  Deciles ranks were averaged and the list ordered from lowest deciles (best states) to highest (worst states).

Builders were asked to describe the availability of credit for land acquisition, land development, and construction for single family homes compared to six months ago.  The possible answers were: better, the same, worse or did not seek credit.

The hypothesis tested is that the states showing some improvement or better than US levels in housing and economic indicators should show more positive availability than the states in greater distress. The results for each of the three types of production lending are shown below.



 The virtual equality in availability measures across two significantly different economic and housing markets is compelling evidence that banks and banking regulators are not differentiating between recovering markets and stressed markets when making decisions about loans to home builders.

The potential harm of this one-size-fits-all approach to credit availability will stifle the housing recovery and ultimately the economic recovery. The significant differences in state economic conditions as measured by the four housing and economic market indicators would suggest that there should be also be a significant difference in credit availability.  The NAHB survey and analysis shows the opposite with virtually no differentiation by market metrics.

  Current Rate Home Owner Vacancy Rate less Norm State Foreclosure Rate less US rate US Population Rate of Change less State Rate of Change State Unemployment Rate less US Rate
Best States 0.3 -2.5 -0.2 -2.3
Worst States 1.01 0.06 0.23 0.25


Best   Worst  
 Wyoming  Pennsylvania
 Texas    Wisconsin
 North Dakota  Hawaii  
 South Dakota  Missouri  
 Alaska    Alabama  
 Montana    Tennessee
 Oklahoma  Georgia  
 Louisiana  Connecticut
 Virginia    Maryland  
 Kansas    Arizona  
 New Mexico  New York
 Delaware  Idaho  
 Utah    South Carolina
 New Hampshire  New Jersey
 Vermont    California
 Iowa    Oregon  
 Massachusetts  Mississippi
 Nebraska  Maine  
 District of Columbia  Kentucky
 North Carolina  Indiana  
 Colorado    Nevada  
 West Virginia  Rhode Island
 Minnesota  Illinois  
 Arkansas  Ohio  
 Washington  Florida  

0 replies

  1. Words/titles on charts are hard to read – need to be refomatted – thanks eric


  1. Federal Reserve Reports Economy Continues to (Slowly) Improve « Eye on Housing

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