US Builder Credit Conditions Tighten for 18th Consecutive Quarter

The National Association of Home Builders (NAHB) reported that credit conditions for land acquisition, development, and construction (AD&C) loans continued to tighten in Q2.

The net easing index derived from NAHB’s survey registered -12.0 in Q2, with a negative reading indicating net tightening. This marked the 18th consecutive quarter in which residential builders and developers reported tighter credit conditions.

Among builders and developers reporting tighter conditions, 53% said lenders required personal guarantees or collateral unrelated to the project. Another 47% cited higher interest rates, lower loan-to-value or loan-to-cost ratios, and lenders refusing to make relationship loans.

The cost of credit generally increased during the quarter, although results varied by loan type. The average contract rate for land acquisition loans rose to 7.77% from 7.42%, while the rate for land development loans increased to 8.09% from 7.27%.

Rates declined for the other two categories tracked. The average contract rate for speculative single-family construction loans slipped to 7.28% from 7.31%, while the rate for pre-sold single-family construction loans fell to 7.01% from 7.19%.