Construction credit, the life-blood for every builder, is becoming easier to come by, according to a new report from their trade association.
Both builders and developers report that lenders are loosening their purse-strings on their all-important acquisition, development and construction funding, the National Association of Home Builders reports.
Based on a survey of key members, the NAHB says its "net tightening index" was a negative 16.5 in the second quarter, somewhat lower than the minus 20.5 reported in the first quarter. (The index is constructed so negative numbers indicate easing of credit.)
At the same time, a similar net tightening index from the Federal Reserve's survey of senior loan officers shows just a slight improvement, from -20.9 in the first quarter to -19.2 in the second quarter.
"The NAHB and Fed surveys had diverged substantially" in the past, according to NAHB economist Robert Dietz. But they "have moved closer together recently and turned in the same direction in the second quarter," he said in a new blog post.
The improvement noted in the NAHB and Fed's indices also is consistent with recent data from the FDIC showing the stock of AD&C loans rose in the second quarter.
According to the NAHB, only 10% of its members said the availability of money for land development had worsened in the second quarter. That compares favorably to the 37% who said development funding has gotten better.
For single-family construction, 9% said funding had gotten worse while 40% said it has improved. And for land acquisition, the split was 9% worse vs. 40% better.
Among those who said AD&C credit had continued to deteriorate in the second quarter, their most common complaint was that lenders simply weren't making new loans. After the 76% who said that, 73% said loan-to-value ratios were too low, 61% said the amounts lenders were willing to lend were too low, and 58% said lenders wanted personal guarantees or collateral unrelated to the project itself.
By contrast, in the first quarter, more than 65% who complained that the AD&C market was worsening voiced each of those complaints.
Economist Dietz said that while commercial banks still remain the primary source of construction funding—"by a wide margin"—private individual investors were cited as the main source for land acquisition by 24% of NAHB members. At the same time, private lenders accounted for 16% of development financing and 10% of their construction money.
Lew Sichelman is an independent journalist who has been covering the housing and mortgage markets for more than 40 years.
