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 from the second quarter.

In the 4th quarter of 2016, the overall net tightening index based on the AD&C survey was -7.3. The 4th quarter reading indicates slightly less easing than in the 3rd quarter of 2016 when the index was -10.7. 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 4th quarter took place on all forms of credit with standards on single-family construction recording the greatest net percentage of easing. However, while the slowdown in the pace of easing over the quarter was evident on single-family construction loans and, to a lesser extent, land development loans, easing on net grew on land acquisition loans. Nevertheless, as illustrated by the figure below, a slowdown in easing on two of the three components contributed to deceleration in the overall index.

A similar survey from the Office of the Comptroller of the Currency also reports eased credit conditions. Each year, following their review of bank balance sheets, federal examiners provide their assessment of changes to credit underwriting by banks. Examiners are asked whether standards on various bank loans eased, tightened or remained unchanged over the year. According to the 2016 iteration of the OCC’s Survey of Credit Underwriting Practices (SCUP), a net of -6.0 percent of bank examiners reported that standards on residential construction loans had eased in 2016.

The figure below tracks the overall index from NAHB’s AD&C Financing Survey with net lending standards on residential construction loans from the SCUP. Between 2005 and 2008 the two series tracked each other closely as lending standards were tightening, but net standards from NAHB’s survey peaked in the 4th quarter of 2008 while the pace of tightening in the OCC survey peaked in 2009.

Since 2009, both surveys reported a slowdown in tightening, but NAHB’s survey reached sustained net easing in 2013 as the OCC’s SCUP reported net easing in 2014. In 2015, single-family builder and developer respondents to NAHB’s survey reported net easing while bank examiners in the OCC’s survey were neutral, the share of examiners reporting that standards had eased matched the portion believing that standards had tightened. However, in 2016, both bank examiners and single-family builders and developers reported net easing.

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