Credit for Builders Remains Tight

NAHB’s Survey on Acquisition, Development & Construction (AD&C) Financing  for the third quarter of 2011 shows that credit conditions for new AD&C loans remain tight. The net bank tightening index calculated from the AD&C survey indicates that NAHB members still believe banks are in a tightening mode—more builders/developers report that loan availability is getting worse than report that it is getting better—although fewer report such tightening in 2011 than did in 2010.

The NAHB AD&C result contradicts a similar net tightening index published by the Federal Reserve based on its quarterly survey of senior loan officers.  The Fed survey shows loan officers on balance  reporting that credit conditions in the real estate sector eased slightly, in the third quarter of 2011 and has been easing throughout 2011.

Among the various ways lenders can tighten, the ones most commonly cited by builders and developers were

  • reducing the  amount they are willing to lend (77%),
  • lowering the allowable loan-to cost ratio (75%),
  • simply not making new AD&C loans (66%),
  • requiring personal guarantees or collateral not related to the project (63%).

One possible response to tightening is to seek new sources of credit.  Although the primary source of credit for any type of AD&C loan remains commercial banks, the share of developers relying on banks for land acquisition loans in particular has been declining.  NAHB added a new category—private equity funds—to the AD&C question on credit sources.  In the third quarter of 2011, private equity funds were cited as the primary source of credit by 23 percent of the developers seeking loans for land acquisition.

Over half of NAHB builders and developers said that they were putting land acquisition, development, and single-family projects on hold until the financing climate improves.



0 replies

  1. What I find utterly ridiculous is that they have all but negated the importance of how much down a person is willing to pay, since it (and closely related home equity) has been historically the single most important factor in people NOT undergoing forclosure. If more people had some of their own money in a home, they would fight harder to keep it. I hear so many people say they are walking away, not because they can’t afford it, they just don’t want to pay more than it is worth.

    So people like us who have a substancial down payment, great income and NO other bills have to “play” with our credit before we can buy. Secured cards, borrowing against a CD…all because when times were tight for us we payed our bills late and eventually completely instead of filing bankruptcy. Then we took that hard earned lesson and payed cash for everything. Now we have to borrow our own money to build credit, while folks who short sell or file bankruptcy can get a new home, viola! I think I am begining to understand the housing crisis.

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