Credit Availability Tightened for US Builders in Q4

According to the National Association of Home Builders (NAHB) Survey on Land Acquisition, Development, and Construction (AD&C) Financing and the Federal Reserve’s survey of senior loan officers, credit tightened further in Q4.

The net easing index derived from the NAHB survey posted a reading of negative 16.3, while the similar index derived from the Fed survey posted a reading of negative 9.5 (the negative numbers indicating that credit tightened since the previous quarter). Although the additional net tightening in Q4 was modest (as indicated by negative numbers much closer to 0 than -100), this marks the twelfth consecutive quarter during which both surveys reported net tightening of credit for AD&C.

According to the NAHB survey, the most common ways lenders tightened credit in Q4 were by lowering the loan-to-value or loan-to-cost ratio (reported by 72% of builders and developers) and reducing the amount they were willing to lend (61%). The Fed’s survey of lenders provided additional insights, including measures of demand and net easing for residential mortgages.

For the second consecutive quarter, contract interest rates declined across all four loan categories tracked in the NAHB AD&C survey. In Q4, the average rate fell from 8.50% to 8.48% for land acquisition loans, from 8.83% to 8.28% for land development loans, from 8.54% to 8.34% for speculative single-family construction loans, and from 8.11% to 7.75% for pre-sold single-family construction loans.