The Official Online Weekly Newspaper of NAHB
Residential builders and developers have yet to see a break in the severe credit crunch that has now hobbled new construction for several years, according to the latest NAHB Survey on Acquisition, Development & Construction (AD&C) financing, which showed that credit conditions on balance continued to tighten throughout this year’s second quarter.
Survey results show that NAHB members still believe that banks are in a tightening mode, with new AD&C loan availability deteriorating instead of improving, according to the net bank tightening index calculated from the AD&C survey.
“Restoring the flow of credit is crucial to the housing recovery that is needed to create jobs and boost economic growth,” said NAHB Chairman Bob Nielsen.
“It is especially troublesome that nationwide regulatory restrictions on bank lending for housing are preventing builders from breaking ground on new projects in healthier markets where the demand for new homes is emerging,” he said.
He added that June’s inventory of unsold new single-family homes was at its lowest level since the government first began compiling this data in 1963.
The NAHB study notes that no significant improvements have been seen even after an extended period of sharp, quarter-after-quarter declines in the availability of new AD&C loans from the end of 2007 through the middle of 2010.
The results of the survey differ from a similar net tightening index published by the Federal Reserve based on its quarterly survey of senior loan officers, which showed that credit conditions in the real estate sector were easing during the first half of this year.
The opinions of NAHB members and senior loan officers on AD&C credit tightening have been on divergent paths since 2009.
Of the various ways lenders can tighten, those most commonly cited by builders and developers who said on the survey that the availability of credit had declined were:
- Lowering the allowable loan-to-value (or loan-to-cost) ratio, 76%
- Simply not making any new AD&C loans, 69%
- Reducing the amount they are willing to lend, 68%
- Requiring guarantees or collateral not related to the project, 67%
Of those involved in land acquisition, development or single-family projects, more than half of the survey respondents said they were putting those activities on hold until they see some improvement in the financing climate.
Smaller shares of those engaging in multifamily construction said they were putting projects on hold — 38% of those building condominiums and 32% of those working on rental properties.
Between 18% and 38% of the survey respondents reported that lenders were tightening terms and conditions on outstanding production loans during the second quarter for these activities:
- Land acquisition, 34%
- Land development, 38%
- Single-family construction, 31%
- Multifamily condominium construction, 22%
- Multifamily rental construction, 18%
In roughly 90% of the cases, the AD&C loans were performing before the lender tightened.
By far the two most common ways lenders were tightening up on existing loans were:
- Requiring a partial downpayment based on a reappraisal of the value of the property, 64%
- Demanding additional assets as collateral, 63%
Whether they were tightening on new or outstanding AD&C loans, lenders most often attributed their action to banking regulators forcing them to do it — 68% of the time for new loans and half the time for loans that were outstanding.
For more information, email Paul Emrath at NAHB, or call him at 800-368-5242 x8449.