The volume of total outstanding acquisition, development and construction (AD&C) loans posted a decline during the second quarter of 2023 as interest rates continue to rise and financial conditions tighten.
The volume of 1-4 unit residential construction loans made by FDIC-insured institutions declined by 2.8% during the second quarter. The volume of loans declined by $2.9 billion for the quarter. This loan volume retreat places the total stock of home building construction loans at $101.4 billion, off a post-Great Recession high set during the first quarter.
On a year-over-year basis, the stock of residential construction loans is up 5.5%. Since the first quarter of 2013, the stock of outstanding home building construction loans has grown by 151%, an increase of more than $61 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 50% 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 11% from peak lending. For the second quarter, these loans posted a 3.2% increase.