Interest Rates on Acquisition, Development, and Construction Financing Climbed Higher in Q2

According to the National Association of Home Builders’ (NAHB) quarterly Survey on Acquisition, Development & Construction (AD&C) Financing, interest rates on loans for AD&C continued to rise in 20223Q2.

The NAHB is reporting that quarter-over-quarter, the contract interest rate increased on all four categories of loans tracked in the AD&C Survey: from 8.50% to 8.62% on loans for land acquisition; from 8.19% to 8.70% on loans for land development; from 8.10% to 8.37% on loans for speculative single-family construction; and from 7.61% to 8.18% on loans for pre-sold single-family construction.

In all four cases, the contract interest rate was higher in Q2 than it had been at any time since the NAHB began collecting data on the subject in 2018. The NAHB notes that the rates have been climbing higher every quarter since the start of 2022, with one minor exception for land acquisition loads in 2022Q3.

The NAHB’s AD&C Survey also collects data on credit availability. To help interpret the data, the NAHB generates a net easing index, similar to the net easing index on the Federal Reserve’s survey of senior loan officers. Plotting the two indices on a single graph allows viewers to compare what both the borrower and lender are saying about current credit conditions (see original source).

To that end, both the NAHB and Fed indices were slightly less negative in Q2 than they had been in Q1. Nevertheless, both are still solidly in the negative territory, indicating a net tightening of credit. The net easing index posted a reading of a negative 35.3, compared to a negative 36.0 in Q1. And the Fed net easing index posted a reading of a negative 71.7, compared to a negative 73.3 in Q1. This marks the sixth consecutive quarter during which both borrowers and lenders have been reporting tightening in credit conditions.