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


According to NAHB’s Survey on Acquisition, Development & Construction Financing, builders and developers again reported easing credit standards for acquisition, development, and construction (AD&C) loans. However, the pace of easing continues to slow from previous periods.

In the first quarter of 2016, 13.3% of survey respondents on net indicated that overall lending standards on AD&C loan availability had eased. In the fourth quarter of 2015, a net share of 27.7% of survey respondents said that lending standards had eased while 33.7% of respondents, on net, reported easing standards one year ago. The index is constructed so that negative numbers indicate credit easing, and positive numbers mean that credit is tightening. As illustrated in the figure below net lending standards were -13.3% in the first quarter of 2016, -27.7% in the previous quarter, and -33.7% in the first quarter of 2015. Since reaching a depth of -35.7% in the fourth quarter of 2014, the NAHB AD&C Index has risen by 22.4 percentage points.

A similar net tightening index from the Federal Reserve Board’s Senior Loan Officer Opinion Survey (Fed SLOS) shows a comparable upward trend, however, senior bank officers report that standards are tightening, on net. It is worth noting that the Fed survey is a reading of the overall commercial real estate lending sector, while the NAHB survey examines just residential development lending.

In the first quarter of 2016, a net percentage of 24.6% of respondents to the FED SLOS reported net tightening, nearly double the pace of tightening in the fourth quarter of 2015, 12.7%. The first quarter result marks the fourth consecutive quarter of net tightening reported by the Fed SLOS.


A recent report from the Federal Deposit Insurance Corporation (FDIC) indicates that the volume of residential construction debt outstanding continues to expand. According to the FDIC report, this form of debt outstanding grew by 18.9% in the fourth quarter of 2015, higher than the 16% to 17.5% annual growth rate range that the series had been in for the prior year and a half. However, the outstanding amount of residential construction loans, a tracking of the stock amount and not the underlying flow, remains reduced from years past. The current stock of existing residential AD&C loans now stands at 70% of the peak level of residential construction lending, $203.8 billion, reached during the first quarter of 2008.

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