Credit for Builders Still Tight But Shows Some Easing

Although credit for residential land acquisition, development, and construction (AD&C) during Q4 2023 remained tight, according to both the Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices and the National Association of Home Builders' (NAHB) AD&C Financing survey, that tightening wasn't as widespread as it's been in recent quarters. Meanwhile, results from NAHB's survey on the cost of credit were mixed, NAHB's Eye On Housing reports. While quarter-over-quarter, the average contract rate held steady on loans for land acquisition (8.31%), there were increases on loans for land development (from 7.78% to 8.12%) and on loans for pre-sold single-family construction (from 8.37% to 8.40%). In contrast, the average contract rate declined from 8.66% to 8.41% on loans for speculative single-family construction.

... The net easing indices derived from both surveys were negative once again in the fourth quarter, indicating net tightening of credit, but not as negative as they were in the third quarter. The NAHB index posted a reading of -19.7, compared to -49.3 in the third quarter, while the Fed’s index posted a reading of -39.7 compared to -64.9 in the third quarter. Although both the NAHB and Fed indices have been in negative territory for eight consecutive quarters, the fourth quarter 2023 readings were as close to positive as either index has been since the first quarter of 2022.

According to the NAHB survey, the most common ways in which lenders tightened in the fourth quarter were by reducing the amount they are willing to lend (cited by 73% of the builders and developers who reported tighter credit conditions), increasing the interest rate on the loans (69%), and lowering the allowable Loan-to-Value or Loan-to-Cost ratio (65%).

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