Total Outstanding Acquisition, Development, and Construction Loans Decline in 2023Q4

Analysis provided by the National Association of Home Builders (NAHB) of total outstanding acquisition, development, and construction (AD&C) loans reveals that the volume of 1–4-unit residential construction loans made by FDIC-insured institutions declined 2.5% during 2023Q4. The volume of loans declined by $2.5 billion for the quarter. This retreat places the total stock of home building construction loans at $97 billion, off a post-Great Recession high set during 2023Q1.

On a year-over-year basis, the stock of residential construction loans is down 7.4%. This contraction for construction financing is a key reason home builder sentiment moved lower at the end of 2023, even as building activity accelerated. Nonetheless, since 2013Q1, the stock of outstanding home building construction loans is up 138%—an increase of more than $56 billion.

The NAHB points out that 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 52% lower than the peak level of residential construction lending of $204 billion reached during 2008Q1. Alternative sources of financing, including equity partners, have supplemented this capital market in recent years.

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), the NAHB said. Such forms of AD&C lending are off a smaller 7% from peak lending. For the third quarter, these loans posted a 1.7% increase.