Volume of Outstanding Acquisition, Development, and Construction Loans Declined in Q3

The National Association of Home Builders (NAHB) reported on Wednesday (11-29-23) that the total outstanding acquisition, development, and construction (AD&C) loan volume declined in Q3.

The volume of 1–4 unit residential construction loans made by FDIC-insured institutions declined by 2.8% during Q3. In dollar terms, the volume of loans declined by $2.9 billion. The NAHB notes that this loan volume retreat places the total stock of home building construction loans at $99.4 billion—down from a post-Great Recession high set during Q1.

Year-over-year, the stock of residential construction loans is down 2.9%. The NAHB says this contraction for construction financing is a key reason home builder sentiment has moved lower in recent months. Nonetheless, since 2013Q1, the stock of outstanding home building construction loans is up 144%, an increase of more than $58 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 51% 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.