NAHB Survey: AD&C Financing Standards Continue to Ease


Builders and developers continue to report easing credit conditions for acquisition, development, and construction (AD&C) loans according to NAHB’s survey on AD&C Financing. However, the pace of easing slowed somewhat in the third quarter of 2016 from the rate in the second quarter.

In the third quarter of 2016, the overall net tightening index based on the AD&C survey was -10.7. The third quarter reading indicates somewhat less easing than in the second quarter of 2016 when the index was -25.0. The index is constructed so that negative numbers indicate easing of credit, the lower the index, the higher the extent of credit easing for AD&C loans.

According to the NAHB survey, easing on net over the third quarter took place on all forms of credit with standards on single-family construction recording the greatest net percentage of easing. As illustrated by Figure 1 below, a net of 17 percent of respondents reported that standards on loans for single-family construction had eased. Meanwhile, 10 percent of respondents on net said that land development loans had eased and 5 percent of builders on net reported eased credit standards on land acquisition loans.


However, a similar survey from the Federal Reserve Board reports tight credit conditions. According to the Senior Loan Officer Opinion Survey (SLOOS), a net of 27.5 percent of bank loan officers reported that standards had tightened over the third quarter. The divergence has been most prominent since the second quarter of 2015 when the SLOOS began to report tight credit conditions on net while NAHB’s survey continued to report net easing.

The contrasting results partly reflect the composition of the AD&C loans in question. The NAHB’s AD&C Financing Survey addresses standards on loans for residential construction, but the Federal Reserve’s SLOOS also captures non-residential construction loans. Previous NAHB analysis illustrated that, when combined, non-residential construction loans are a larger portion of all AD&C loans. Another difference between the two surveys is the identity of the respondent. While NAHB’s AD&C Financing Survey is answered by its builder and developer members, the Federal Reserve’s SLOOS is answered by loan officers at the largest commercial banks.


The possibility that these differences can have an impact on results is boosted when a third survey joins the group, the Survey of Credit Underwriting Practices (SCUP) published at the end of each year by the Office of the Comptroller of the Currency (OCC). The OCC’s survey provides results on credit standards for residential and non-residential construction loans separately and is answered by bank examiners.

In 2015, the year when the SLOOS began to report tightening credit standards, the OCC reported easing standards on commercial construction lending. This contrast was highlighted in the OCC’s Spring 2016 Semiannual Risk Perspective, where the OCC noted that “The Senior Loan Officer Opinion Survey on Bank Lending Practices, published by the Board of Governors of the Federal Reserve System, has reported a net tightening in underwriting for CRE and C&I loans for the fourth quarter of 2015 and the first quarter of 2016. The OCC has not, however, seen evidence of tightening during supervisory activities to date.”

The OCC’s SCUP also found that standards on residential construction loans neither eased nor tightened on net in 2015 as 100 percent of bank examiners reported that standards were unchanged over that year. However, in 2014, 12 percent of bank examiners on net reported that standards on residential construction lending had eased, consistent with the easing reported by NAHB’s AD&C Financing Survey.

Taken together these three surveys provide important information about the nature of credit standards on loans used to support the construction industry. However, the portion of the construction industry that each survey probes varies. In addition, the results of each survey reflect the perspective of a different interest in the loan process. NAHB’s AD&C Financing Survey focuses on AD&C loans for the residential building industry from the perspective of builders and developers, while the Federal Reserve Board’ SLOOS addresses AD&C loans, across both the residential and non-residential sectors, from the perspective of senior loan officers. The OCC’s SCUP addresses residential and non-residential construction loans separately from the view of bank examiners.

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