In the third-quarter of 2019, builders and developers reported declining interest rates on all types of loans covered in NAHB’s survey on acquisition, development and construction (AD&C) financing. In the third quarter, the average interest rate declined from 6.59 to 6.39 percent on loans for land acquisition, from 6.49 to 6.39 percent on loans for land development, from 6.21 to 5.99 percent on loans for speculative single-family construction, and from 5.97 to 5.63 percent on loans for pre-sold single-family construction. In all four cases, the decline reversed an upward trend from the previous quarter.
For A&D financing, the average points on the loans also declined in the third quarter—from 0.99 to 0.84 percent of the initial commitment on loans for acquisition, and from 1.03 to 0.71 percent on loans for development. On financing for single-family construction, after falling to their lowest levels since the question was added to the survey at the start of 2018, the initial points on the loans increased in the third quarter—from 0.71 to 0.92 percent on loans for speculative construction, and from 0.45 to 0.74 percent on loans for pre-sold construction.
When asked about the availability of new credit for land acquisition in the third quarter of 2019, 12 percent of respondents to the NAHB survey said it was “better” and the other 88 percent said “about the same.” Fifteen percent reported “better” credit conditions for land development, while 8 percent said it was “worse”. For new single-family construction loans, 16 percent said availability was “better,” while 3 percent said it was “worse.” While 46 percent of respondents sought credit in the third quarter of 2019 for single-family construction, under 30 percent sought credit for either land acquisition or land development.
Overall, based on the above responses, the AD&C financing survey indicated easing credit conditions in the third quarter. The net tightening index constructed from the NAHB survey was -10.7, compared to -0.7 in the second quarter. The index is constructed so negative numbers indicate easing of credit, positive tightening, so a lower negative index means greater easing. Meanwhile, a similar net tightening index from the Federal Reserve’s survey of senior loan officers was 16.2, indicating tighter credit conditions, up from 5.6 in the second quarter.