In the third quarter of 2018, credit conditions eased somewhat, according to the builders and developers responding to NAHB’s survey on land acquisition, development, and construction (AD&C) loans. The net tightening index constructed from the NAHB survey was -12.0 in the third quarter quarter, compared to -5.0 the previous quarter. The index is constructed so negative numbers indicate easing of credit; positive tightening, so a lower negative index means greater easing. Meanwhile, a similar net tightening index from the Federal Reserve’s survey of senior loan officers was +6.0, indicating slightly tighter credit conditions, up from +1.4 in the second quarter..
The NAHB Index is based on questions asking builders and developers if availability of credit has gotten better, worse, or stayed the same since the previous quarter. In the third quarter of 2018, only 9 percent of NAHB members said availability of credit for land development had gotten worse, compared to 16 percent who said it had gotten better. For single-family construction, 5 percent reported worsening credit conditions, compared to 16 percent who said it got better. Similarly for land acquisition, the availability of credit was worse for 6 percent, compared to 24 percent who said it was better.
The median interest rate for typical AD&C loans in the third quarter was 5.50 for pre-sold construction, and 6.00 percent for acquisition, development, and speculative construction loans. Lenders also charged 0.6 points on acquisition and development loans, and 0.5 points on spec and pre-sold construction loans.
Compared to the second quarter, interest rates reported on on acquisition, development and spec construction loans were up, while the points were down. Reported interest rates and points on loans for pre-sold construction were unchanged.