US Residential Construction Loan Volume Falls in Q4

On Friday, the National Association of Home Builders (NAHB) reported that higher interest rates and tight financial lending conditions have led to a decline in loans for new-home construction.

The total volume of acquisition, development, and construction (AD&C) loans outstanding from FDIC-insured institutions fell 1.02% to $490.7 billion, the third straight quarterly decline. The level of 1-4 residential construction loans—which include loans for the construction of single-family homes and townhomes—has fallen for seven consecutive quarters. Accordingly, the volume of 1-4 residential construction has moved to its lowest level since 2021.

The volume of 1-4 family residential construction and land development loans totaled $89.5 billion in Q4, down 7.6% from one year earlier. This is also down after reaching a recent high of $105.0 billion in 2023Q1.

Excluding 1-4 family residential construction loans, the level of all other outstanding real estate construction loans totaled $394.6 billion and was down 2.2% from the previous year. This is also down from a peak in 2024Q2 of $404.2 billion.

Finally, NAHB noted that the FDIC data represent only the stock of loans, not changes in the underlying flows, so it is an imperfect data source. Nonetheless, lending remains much reduced from years past. The current amount of existing 1-4 family residential AD&C loans now stands 56% lower than the peak level of residential construction lending of $204 billion reached during the first quarter of 2008. Alternative sources of financing, including equity partners, have supplemented this capital market in recent years.