Mortgage Rates Decline, But Credit for Builders Tightens

The second quarter brought upon tightening credit for builders and developers, NAHB reports. The association’s survey on financing for Acquisition, Development, and Construction (AD&C) found the net tightening index to be 12.0, down from first quarter’s 22.7. For this index, the higher the number, the worse the net bank tightening. The Federal Reserve’s index differs, increasing to 80.9. Builders and developers reported that lenders were most often not making new loans, pulling back due to COVID-19, lowering their LTV or LTC ratios, or reducing the amount they are willing to lend. 

Reversing a downward trend from the previous quarter, larger shares of builders and developers reported seeking AD&C loans in the second quarter of 2020.  The share increased from 22 to 31 percent of respondents seeking credit for land acquisition, from 20 to 29 percent of respondents seeking credit for land development, and from 45 to 52 percent of respondents seeking credit for any type of single-family construction.  Despite the rebound, all these percentages remained lower than they were at the end of 2019.  It is tempting to blame the reduced loan-seeking behavior on the coronavirus, although relatively few builders or developers cited the virus when given a chance to explain why they were not seeking credit.

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