In the second quarter of 2018, credit conditions for land acquisition, development, and single-family construction loans were close to stable, according to NAHB’s AD&C Financing Survey. The overall net tightening index constructed from the survey was -5.0. The index is constructed so that negative numbers indicate credit easing, positive numbers indicate tightening, and zero indicates perfectly stable conditions. The second quarter reading of -5.0 is the closest the net tightening index has been to zero since 2012. Meanwhile, a similar net tightening index from the Federal Reserve’s survey of senior loan officers was positive but also fairly close to zero, at 1.4. The NAHB and Fed indexes were within seven points of each other in the second quarter. This as close as the two indexes have come to agreeing with each other since the third quarter of 2012.

The stability was particularly evident in the market for acquisition and development loans. Sixteen percent of builders and developers responding to the NAHB survey said availability of new credit for land acquisition was better, perfectly balancing the 16 percent who said it had gotten worse. Similarly, 17 percent reported better credit conditions for land development, while 15 percent said it was “worse”. Some net easing was still apparent in the market for new single-family construction loans, as 23 percent of builders said availability was better in the second quarter of 2018, while 10 percent said it was “worse”

Also in the second quarter of 2018, 37 percent of builders and developers said the availability of loans for speculative single-family construction is the same as for pre-sold construction, while 41 percent indicated availability of spec loans is somewhat worse loans. The remaining 22 percent said the availability of spec loans is significantly worse. These percentages have been relatively stable over the past three quarters.

The second-quarter AD&C Survey also showed that the median term for a typical land acquisition or development loan is 24 months, while for single-family construction (whether pre-sold or spec) it is 12 months. The median loan-to-value ratio is 75 percent for acquisition and development loans, compared to 80 percent for construction loans. The median interest rate for the AD&C loans ranged from 5.50 to 5.75 percent, plus an additional 1.00 point on acquisition and development, 0.75 points on spec construction, and 0.50 percent on pre-sold construction loans

Tags: ADC, construction lending, credit conditions, economics, home building, housing, single-family