AD&C Financing Conditions Ease in 2017


Builders and developers responding to NAHB’s AD&C Financing Survey continue to report easing credit conditions for acquisition, development, and single-family construction loans and the pace of easing quickened. In the fourth quarter of 2017, the overall net tightening index based on the AD&C survey was -15.3, indicating net easing. All major categories of AD&C financing also recorded net easing, with a larger net proportion of survey respondents indicating that standards had eased on land development loans than on land acquisition loans and single-family construction loans.

In the third quarter of 2017 the overall net tightening index was -7.7, 7.6 points above the fourth quarter of 2017 reading. Over the past four quarters, the overall net tightening index fell by 8 points from -7.3. Over the quarter, the accelerated pace of net easing reflected a faster pace on land development loans and single-family construction loans. Over the past year, all three categories of AD&C financing contributed to the overall acceleration in the availability of AD&C financing.

The reason for the relatively large decrease in net tightening over the quarter across land development and single-family construction loans is because a larger proportion of respondents indicated that standards had gotten “better”. While there was a large percentage increase in the share of respondents indicating that land acquisition loan standards had gotten better over the quarter as well, it was offset by a large increase in the portion of respondents saying that standards had gotten worse.

Across all three categories, the acceleration in net easing over the year largely reflected an increase in the percentage of respondents indicating that conditions had gotten better. The net tightening across all three subcategories represents the difference between the proportion of respondents saying that conditions got “worse” and the share answering that conditions were “better”. The Overall Index reading is the arithmetic mean across the three sub categories.

Results from NAHB’s AD&C Financing Survey indicate continued easing, however, the Federal Reserve Board’s Senior Loan Officer Opinion Survey (SLOOS) suggests continued tightening. Moreover the pace of easing and tightening recorded by each respective survey quickened and the two series diverged after a two-quarter period of convergence.

The gap highlights the differences in the two surveys. In addition to being based on a survey of loan providers rather than consumers, the Federal Reserve index differs from the NAHB version by capturing all types of commercial real estate lending, including non-residential, an important distinction illustrated in previous NAHB analysis (here and here).

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