AD&C Lending Conditions Ease in the Third Quarter


According to an NAHB industry survey, lending conditions for acquisition, development and construction loans continued to ease during the third quarter.

In the third quarter of 2014, the overall net tightening index based on the AD&C survey improved (i.e., declined) from -22.7 to -31.0. The index is constructed so negative numbers indicate easing of credit; positive tightening, so a lower negative index means greater easing.

NAHB survey_ADC_nov

Meanwhile, a similar net tightening index from the Federal Reserve’s survey of senior loan officers showed credit easing from -9.6 in the second quarter to -10.8 during the third quarter of 2014.

According to the NAHB survey, less than 15% of respondents report credit conditions worsening in the third quarter. For example, only 12% of NAHB members said availability of credit for land acquisition had gotten worse, compared to 38% who said it had gotten better. Only 6% reported worsening credit conditions for single-family construction, compared to 43% who reported better conditions. Similarly, only 14% said credit available for land development was worse during the third quarter of 2014, compared to 44% who said it had gotten better.

It’s worth noting that the share reporting better conditions in the third quarter of 2014 is the highest since the inception of the survey in 2005-for all three AD&C activities.

Among the relatively few members who reported tighter credit conditions in the third quarter, the top three problems were lowering the allowable LTV (or loan-to cost) ratio (81%), banks reducing the amount they are willing to lend (75%), and not making new loans, requiring personal guarantees or collateral not related to the project, and refusing to make relationship loans (63% percent each).

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