Lending Standards on AD&C Financing Continue to Ease, but at a Moderately Slower Pace

Builders and developers continue to report easing credit standards for acquisition, development, and construction (AD&C) loans. However, the pace of easing has slowed somewhat from previous periods.

According to NAHB’s Survey on Acquisition, Development & Construction Financing, 27.7% of survey respondents on net indicated that overall lending standards on AD&C loan availability had eased in the fourth quarter of 2015. In the third quarter, a net share of 30.3% of survey respondents said that lending standards had eased while 35.7% of respondents, on net, reported easing standards one year ago. Since the index is constructed so that negative numbers indicate credit easing, and positive numbers mean that credit is tightening, then the graph below shows that net lending standards were -27.7% in the fourth quarter of 2015, -30.3% in the previous quarter, and -35.7% in the fourth quarter of 2014.

In contrast, survey results from the Federal Reserve Board’s Senior Loan Officer Opinion Survey (Fed SLOS) point to tightening lending standards. In the most recent iteration of the Fed SLOS, which covers the last 3 months of 2015, a net share of 12.7% of respondents indicated that lending standards on AD&C loans had tightened. In the third quarter of 2015, a net share of 4.3% of respondents indicated that lending standards had tightened, but one year ago a net share of 2.8% of respondents believed that standards had eased. While NAHB’s Survey on AD&C Financing collects responses from builders and developers about lending standards on residential construction, the FED SLOS queries senior loan officers at large commercial banks about lending standards on both residential and non-residential construction.


A recent report from the Federal Deposit Insurance Corporation (FDIC) indicated that the volume of AD&C debt continues to expand. However, the FDIC tracks the stock of loans and not changes in underlying flows. According to the FDIC report, the volume of residential construction loans outstanding expanded 3.9% during the third quarter of 2015, marking the tenth consecutive quarter of growth. On a year-over-year basis, the stock of residential construction loans is up 16.5% from the third quarter of 2014, as indicated by the red bars in the graph below. The current reading marks the sixth consecutive quarter of year-over-year growth in the range of 16% to 17.5%.

In addition to a moderate slowdown in overall lending standards on AD&C loans, the Survey of AD&C Financing also found that commercial banks remain the primary source of credit for AD&C by a wide margin. Although commercial banks remain the primary source of credit, thrift institutions remain a source for some. Thrift institutions were cited as the primary source of loans for single-family speculative construction by 18% of NAHB members, for land development by 13%, for single-family pre-sold construction by 12%, and for land acquisition by 8%. Between 9% and 12% reported private individual investors as the primary source of credit for land acquisition, land development, and single-family construction.

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