Residential Construction Loan Growth at Smaller Banks Has Slowed

Residential construction loans held by banks have grown over the past 4 years. However, in recent quarters, growth in the stock of residential construction loans has slowed. The recent slowdown in residential construction loan volume largely reflects a deceleration in growth across smaller banks, those with assets below $10 billion. These banks hold the majority of the bank-held residential construction loan stock. After a slowdown in positive growth for four consecutive quarters, the volume of residential construction loans held by smaller banks shrank in the first quarter of 2017.

Previous analysis from NAHB found that residential construction loans held by banks have grown for 16 consecutive quarters. As of the first quarter of 2017, the volume of residential construction loans held at banks totaled $70.7 billion, up 74 percent from its low, $40.7 billion, reached in the first quarter of 2013, but 65 percent below its recorded high of $203.8 billion reached in first quarter of 2008*.

However, in recent quarters, growth in the stock of residential construction loans has slowed from its steadier growth rates between 2014 and the first 3 quarters of 2016.  As shown in the figure above, quarter-over-quarter growth in the residential construction loan stock returned in the second quarter of 2013. Between the first quarter of 2014 and the third quarter of 2016, quarterly growth averaged 4.1 percent. However, in the fourth quarter of 2016 growth slowed to 1.5 percent and in the first quarter of 2017 growth in the volume of residential construction loans was 1.6 percent.

The recent slowdown in residential construction loans largely reflected a deceleration in the rate of growth across smaller banks, those with assets at or below $10 billion, while growth at larger banks, those with assets at or exceeding $10 billion, has been more sporadic. NAHB analysis has found that smaller banks, those with assets totaling less than $10 billion , hold the majority of the residential construction loans stock. In the first quarter of 2017, these banks, in aggregate, accounted for 62 percent of the residential construction loans on the balance sheets of FDIC-insured banks.

Over the first two quarters of 2016, growth in the residential construction stock at smaller banks slowed in each successive quarter while growth at larger banks first accelerated over the first quarter than slowed in the second. In the third quarter of 2016, residential construction loan growth at smaller banks continued to slow, but growth at larger banks accelerated again. Despite strong growth across larger banks over the first quarter of 2017 as well, residential construction loan growth overall remained low as the volume of residential construction loans held by smaller banks shrank.

* The residential construction loan data only go back to the first quarter of 2007.



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