Eye On Housing
Continuing a period of volume decline that began at the end of 2019, the volume of residential construction lending posted a slight decline during the fourth quarter of 2020. Overall residential construction loan volume ended the year lower due to accelerated sales growth, which reduced outstand loans at a faster clip, and higher interest rates for AD&C financing.
The volume of 1-4 unit residential construction loans made by FDIC-insured institutions declined by 1.5% during the fourth quarter, as new homes sales accelerated. NAHB survey data indicate that builders cited concerns about construction loan access, with reported first quarter lending conditions at the tightest levels since 2011. While those conditions eased as 2020 progressed, average interest rates ended 2020 higher than those reported at the start of the year.
The volume of loans declined by $1.1 billion at the end of the year. This loan volume contraction placed the total stock of home building construction loans at $77.3 billion.
On a year-over-year basis, the stock of residential construction loans is down 3.1%, with quarterly loan declines in four of the last five quarters. Since the first quarter of 2013, the stock of outstanding home building construction loans has grown by 90%, an increase of almost $36.6 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 62% lower than the peak level of residential construction lending of $204 billion reached during the first quarter of 2008. Alternative sources of financing, including equity partners, have supplemented this capital market in recent years.
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 29% from peak lending. For the fourth quarter, these loans posted a 0.33% increase, a possible indication of increased land development activity ahead.
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