In case the suppressed demand and supply chain disruptions were not enough, builders are now reporting tighter credit conditions on loans for land acquisition, development, and family construction, according to an NAHB survey. Respondents singled out the main culprit for the stricter lending as the coronavirus. This is the first time since 2012 that builders and developers have reported that loans were harder to obtain. One bright spot if a builder does get a loan? Interest rates are lower than they were before.
For the first time since 2012, builders and developers reported tighter credit conditions on loans for land acquisition, development and single-family construction (AD&C) in NAHB’s AD&C financing survey for the first quarter of 2020. The net tightening index derived from the NAHB survey jumped to 22.7, about 40 points higher than the -22.3 reported in the fourth quarter of 2019. The index is constructed so that positive numbers indicate tightening of credit, with larger positive numbers indicating more widespread tightening. A similar index from the Federal Reserve’s survey of senior loan officers also showed a spike in tightening. The Fed index jumped to 52.4 in the first quarter of 2020, 45 points higher than the 7.4 reported in the fourth quarter of 2019 and the highest it’s been since 2009.
The NAHB net tightening index uses information from questions that ask builders and developers if availability of credit has gotten better, worse, or stayed the same since the previous quarter. In the first quarter of 2020, none of the NAHB builders said availability of credit for land acquisition had gotten better, compared to 26 percent who said it got worse. For land development, 5 percent said credit conditions improved, compared to 27 percent who said it got worse. For single-family construction, 6 percent reported credit conditions were better in the first quarter of 2020 than in the final quarter of 2019, while 26 percent said they got worse. The number one reason credit conditions got worse was that ‘lenders are pulling back because of coronavirus concerns’ (57 percent), followed by ‘lenders are lowering their LTV or LTC ratios’ and ‘lenders are reducing the amount willing to lend (both reported by 46 percent).
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