Builders and developers continue to report that credit for acquisition, development, and construction (AD&C) is improving slightly, according to NAHB’s survey on AD&C financing. In the fourth quarter of 2012, the overall net tightening index based on the AD&C survey was -4.5, which was little changed from the third quarter. The index is constructed so negative numbers indicate easing of credit; positive tightening.
A similar net tightening index from the Federal Reserve’s survey of senior loan officers was -13.4 in the fourth quarter. So for two consecutive quarters now, builders and lenders have agreed that availability of credit in the construction sector is improving.
Of course, two quarters of modest easing is not enough to offset the many consecutive quarters of tightening that occurred between 2006 and 2011. On balance, AD&C credit is probably still a drag on the housing recovery, as indicated by FDIC data on the stock of outstanding AD&C loans that, although no longer shrinking, is not growing to keep pace with the improvement in housing starts.
According to the NAHB survey, the greatest improvement occurred in the availability of credit for single-family construction. Only 11% of NAHB members said availability of credit for single-family construction had gotten worse in the fourth quarter, compared to 29% who said it had gotten better. For land acquisition, development, and multifamily construction, NAHB members were closer to evenly split on whether credit conditions had improved or gotten worse.
Among NAHB members who said AD&C credit conditions had in fact continued to deteriorate in the fourth quarter, the most common problems were lenders simply not making new AD&C loans (65%), reducing the amount they are willing to lend (62%), lowering the allowable LTV (or loan-to cost) ratio (62%), requiring personal guarantees or collateral not related to the project (60%), and refusing to make relationship loans (60%).
For more detail, see the full report on AD&C Financing for the 4th Quarter.