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Builders and Developers Report Tighter Credit in the First Quarter of 2022

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Builders and Developers Report Tighter Credit in the First Quarter of 2022

Availability of credit for land acquisition and development worsened at the start of 2022, builders say 

May 13, 2022
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Builders reported tighter credit during the first quarter of 2022, causing a slight dip in the average loan-to-value ratio for pre-sold and speculative single-family construction as well as land development and acquisition, NAHB Eye on Housing reports. The NAHB’s net easing index fell to -2.3 compared to +9.7 in the fourth quarter of 2021, while the Fed’s index also dropped from +10.3 in Q4 2021 to -4.7 in Q1 2022.

Roughly 6% of NAHB builders reported that availability of credit for land acquisition had improved at the start of 2022, while 9% said it had gotten worse. Around 3% of builders said credit conditions improved for land development, while 14% of respondents reported worsening credit conditions. For single-family construction, 11% of builders noticed improvements in availability of credit, compared to just 4% who said it had gotten worse.

One way lenders reduced availability of credit in the first quarter of 2022 was by lowering  Loan-to-Value (LTV) and Loan-to-Cost (LTC) ratios. In the NAHB survey, the average LTV on all four categories of AD&C loans declined between the fourth quarter of 2021 and the first quarter of 2021: from 70.9 to 64.4 percent on loans for land acquisition, from 72.4 to 67.7 percent on loans for land development, from 76.7 to 74.1 percent on loans for speculative single-family construction, and from 77.4 to 76.0 percent on loans for pre-sold single-family construction.

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