Demand for Construction Loans Slowed at End of 2019

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The Federal Reserve’s latest Senior Loan Officer Opinion Survey contains the reported lending practices, as of the fourth quarter of 2019, of 80 large domestically chartered commercial banks and up to 24 large U.S. branches and agencies of foreign banks. The questions that comprise most of the survey are those relating to Commercial & Industrial (C&I) loans, Commercial Real Estate (CRE) loans, and residential real estate (RRE) loans1. For the C&I loan category, banks left their lending standards for large to middle-market firms basically unchanged from the previous quarter, while the demand for such loans significantly weakened, with 11% of such banks, on net, reporting less demand. The survey reported a net tightening of banks’ lending of commercial real estate loans for construction and land development, but modestly less demand for such loans in the fourth quarter of 2019. This stands in stark contrast to the development in the prior quarter, which had seen an expansion in AD&C loans.

The below figure shows a summary of what was reported in CRE loans pertaining to construction and land development.

As shown above, as of the end of the fourth quarter of 2019, banks reported that, on net, 6% less firms expressed interest in loans for construction and land development, while 7% more banks reported tighter standards for lending for these purposes.

Over the fourth quarter, banks reportedly left standards unchanged for all types of RRE loans, including all closed-end mortgage loans and HELOCs. Interestingly, significant net shares of banks reported stronger demand for government-sponsored, enterprise-eligible residential mortgages,

Notes:

  1. The term “residential real estate lending”, as when used in the Senior Loan Officer Opinion Survey, excludes loans secured by multifamily residential properties, and thus can be thought to encompass the loans secured by all single-family dwellings and low-unit multifamily properties, the latter of which are usually 2-4 units.


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