Are AD&C Lending Conditions Tightening?

Builders and developers continue to report easing credit conditions for acquisition, development, and construction (AD&C) loans according to NAHB’s most recent survey on AD&C financing, although a separate Federal Reserve survey is trending differently.

In the second quarter of 2015, the overall net tightening index of the NAHB survey was -30.7,which represents somewhat less easing than in the first quarter of 2015 when the index was -33.7. The index is constructed so negative numbers indicate easing of credit; positive tightening, so a less negative index means less easing.

In contrast, a similar net tightening index from the Federal Reserve’s survey of senior loan officers showed tighter credit conditions: increasing from -2.7 in the first quarter of 2015 to 1.4 in the second quarter of 2015. This the first time the Fed’s index, which reflects both residential and commercial real estate AD&C lending conditions, has indicated net tightening since 2010.


Slightly over two-thirds of respondents to the NAHB survey reported that credit conditions were about the same in the second quarter. For example, 69% said credit availability was about the same for land acquisition, and 68% said credit availability was about the same for land development and single-family construction. Almost all of the rest of the respondents said credit conditions had improved. None said availability of credit had gotten worse for land acquisition or single-family construction loans, and only 2% said availability of credit for land development deteriorated.

The survey also asked builders and developers to compare the availability of new loans for speculative and pre-sold single-family construction in the second quarter. Seventy-two percent said availability of credit for speculative construction was somewhat or significantly worse (42% somewhat, 30% significantly). This is the first-time the share reporting tighter credit for speculative construction has been over 70% since NAHB began asking the question in the second quarter of last year.

Builders and developers continue to rely heavily on commercial banks for credit. Of the respondents who were seeking credit in the second quarter, 66% reported commercial banks were the primary source of loans for land acquisition, 73% for speculative single-family construction, and 74% for land development and pre-sold single-family construction. Private individual investors are generally the second most important source—especially for land acquisition, where 17 percent of respondents cited private individuals as the primary source of credit.

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