According to the latest from the latest National Association of Home Builders survey on financing for Acquisitions, Development and Construction (AD&C) while lenders continued to report tightening credit in Q3, borrowers reported little change in credit availability. The net tightening index derived from the NAHB survey was -3.3 in Q3 2020, compared to 12.0 in Q2. The index is constructed so that positive numbers indicate tightening of AD&C credit, negative numbers easing. Also, in Q3 of 2020, builders and developers reported a rise in the cost of borrowing on all categories of loans covered in the AD&C survey. The average effective rate (based on rate of return to the lender over the assumed life of the loan taking both the contract interest rate and initial fee into account) increased from 6.43% to 7.27%. An increase in effective rates may be due either to an increase in the contract interest rate on the outstanding loan balance, or in the initial fee charged on the loan commitment. In the third quarter, however, both aspects of the loans were rising across the full spectrum of AD&C lending.
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Builder Credit: More Expansive But More Costly in 3Q