AD&C Credit Conditions Continue to Ease, but Lending Gap Persists

Filed in Housing Finance, Multifamily by on December 9, 2013 0 Comments

Builders and developers continue to report that credit is easing for acquisition, development and construction (AD&C) loans, according to NAHB’s ongoing survey on AD&C financing.

As reported in NAHB’s Eye on Housing blog, 28% of the members who were surveyed said the availability of credit for land acquisition improved in the third quarter. Only 9% said it had worsened. For single-family construction, 38% reported that credit availability had improved and only 5% reported worsening conditions.

For land development and multifamily construction, more than twice as many members reported that the availability of credit had improved as reported that it worsened.

Among members who said conditions had worsened in the third quarter, the most frequently cited reasons were that lenders were reducing the amount they were willing to lend (69%) and that lenders were lowering the allowable loan to value ratio (62%). Requiring personal guarantees or collateral unrelated to the project or simply not making new AD&C loans were both cited by 54%.

Lending Gap Persists

Although the availability of credit for AD&C loans is easing, and the value of the outstanding stock of residential AD&C loans increased by 2.7% in the third quarter, lending is still much lower than in previous years, according to another report in the Eye on Housing blog.

Since the beginning of 2007, the dollar value of single-family permitted construction is down 43%. Lending for residential AD&C is down 78% over the same period.

Part of the lending gap is being filled by other sources of capital including equity, non-traditional lenders and private investors. NAHB is working to develop additional sources of AD&C funding for residential construction.

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