Residential Construction Loan Volume Moves Higher


Ending a period of volume decline that began at the end of 2019, the volume of residential construction lending posted an increase during the first quarter of 2021. Nonetheless, overall residential construction loan volume ended the year lower due to accelerated sales growth, which reduced outstand loans at a faster rate.

The volume of 1-4 unit residential construction loans made by FDIC-insured institutions increased by 1.1% during the first quarter, as new homes sales accelerated. The volume of loans increased by $0.8 billion at the start of the year. This loan volume expansion placed the total stock of home building construction loans at $78.2 billion.

On a year-over-year basis, the stock of residential construction loans is down 4%, with quarterly loan declines in two of the last three quarters. Since the first quarter of 2013, the stock of outstanding home building construction loans has grown by 92%, an increase of almost $37.5 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 first quarter, these loans posted a 0.5% increase, a possible indication of increased land development activity.

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