Steady AD&C Loan Growth


The volume of residential AD&C loans outstanding expanded 4.7% during the second quarter of 2015, marking the 9th consecutive quarter of growth.

The tight availability of acquisition, development and construction (AD&C) loans has been a factor holding back a stronger rebound in home construction.

According to data from the FDIC and NAHB analysis, the outstanding stock of 1-4 unit residential construction loans made by FDIC-insured institutions rose by $2.498 billion during the second quarter of 2015, a quarterly increase of 4.7% to a total stock of $56.1 billion.

On a year-over-year basis, the stock of residential AD&C loans is up 16.4% from the second quarter of 2014, as indicated by the red bars in the graph below. The current reading marks the 5th consecutive quarter of year-over-year growth in the range of 16% to 17.5%.

FDIC AD&C 2q_15

Since the first quarter of 2013, the stock of outstanding home building AD&C loans has grown by 37.6%, an increase of $15.3 billion.

It is worth noting the FDIC data represent only the stock of loans, not changes in the underlying flows, so it is an imperfect data source. Nonetheless, the consistent growth in the outstanding stock of AD&C loans is a positive development. NAHB surveys of builders also suggest improving lending conditions, although recent Fed survey data indicates some tightening for commercial real estate lending purposes.

Lending remains much reduced from years past. The current stock of existing residential AD&C loans now stands 72.5% lower than the peak level of AD&C lending of $203.8 billion reached during the first quarter of 2008.

The FDIC data reveal that the total decline from peak lending for home building AD&C loans continues to exceed that of other AD&C loans (nonresidential, land development, and multifamily). Such forms of AD&C lending are off a smaller 55% from peak lending. This class of AD&C loans has now registered eight quarters of expansion (3.75% for the fourth quarter of 2014).

Some land development loans connected to home building are grouped in this other class. NAHB survey data indicate land development loans face tighter lending conditions than loans for residential construction purposes.

Despite the steady increases in residential AD&C lending, there exists a lending gap between home building demand and available credit. This lending gap is being made up with other sources of capital, including equity, investments from non-FDIC insured institutions and lending from other private sources, which may in some cases offer less favorable terms for home builders than traditional AD&C loans.

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