AD&C Loan Volume Expands at Start of 2019


After a slight dip at the end of 2018, a consequence of rising interest rates, the volume of residential construction loans increased 1.5% during the first quarter of 2019. The fourth quarter decline of 0.2% ended a period of 22 consecutive quarters of growth. The expansion of construction loans mirrors an NAHB survey showing a slight easing of credit conditions at the start of 2019, with an average 6% rate for speculative single-family construction financing.

Tight availability of acquisition, development and construction (AD&C) loans has been a limiting or cost factor for home building growth, but easing credit conditions and a growing loan base helped expand residential construction activity, albeit modestly. According to data from the FDIC and NAHB analysis, the outstanding stock of 1-4 unit residential construction loans made by FDIC-insured institutions increased by $1.1 billion during the first quarter of 2019, placing the total amount of outstanding loans at $80 billion.

On a year-over-year basis, the stock of residential construction loans is up just under 6%, the lowest rate since 2013. Since the first quarter of 2013, the stock of outstanding home building construction loans has nonetheless grown by 97%, an increase of $39 billion.

It is worth noting the FDIC data represent only the stock of loans, not changes in the underlying flows, so it is an imperfect data source.

Lending remains much reduced from years past. The current amount of existing residential AD&C loans now stands 61% lower than the peak level of residential construction lending of $204 billion reached during the first quarter of 2008.

The FDIC data reveal that the total decline from peak lending for home building construction loans continues to exceed that of other AD&C loans (nonresidential, land development, and multifamily). Such forms of AD&C lending are off a smaller 37% from peak lending. However, this class of AD&C loans ended a 21 quarter period of expansion at the end of 2018, declining 0.3%.

Thus, as lending slows down a gap remains between the current volume of home building demand and available credit. This lending gap is being made up with other sources of capital, including equity, investments from non-FDIC insured institutions and lending from other private sources, which may in some cases offer less favorable terms for home builders than traditional AD&C loans.


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