After more than five years of persistent tightening, NAHB’s survey on Acquisition Development & Construction (AD&C) financing finally shows conditions stabilizing somewhat in the first quarter of 2012. After such a protracted period of decline, however, the stability comes at a very low level of credit availabity. The NAHB survey results remain somewhat at odds with a similar net tightening index based on the Federal Reserve’s survey of senior loan officers, although the two indices now appear to be converging. The Fed survey shows loan officers on balance reporting credit conditions in the real estate sector easing slightly since 2010, with more substantial easing occuring in the first quarter of 2012.
Among the types of loans covered in NAHB’s AD&C survey, credit still seemed to be tightening somewhat on loans for A&D. In the first quarter of 2012, developers who said that availability of loans for land acquisition and development was getting worse (28% and 25%, respectively) continued to outnumber the relatively few (19% and 17%) who said conditions were improving. The spread between the worse and better shares on A&D loans was noticeably larger for developers with fewer than 25 total starts.
The ending of further declines in AD&C loan availability and movement toward stability—albeit at very tight credit conditions—is consistent with evidence cited in the May 31 post by Rob Dietz, and with answers to questions included on the builder survey that generates the NAHB/Wells Fargo Housing Market Index (HMI).
Two-thirds of builders responding to the May HMI survey said there had been no change in AD&C financing over the past 6 months. In comparison, over that same period most builders reported that construction costs had gotten worse. So, while the industry strives to recover from its most severe post-war recession, rising construction costs have emerged as a new obstacle, on top of other impediments like regulatory barriers and credit conditions that appear to be stabilizing but remain tight.