Home builders experienced tightening credit in the second quarter, according to the National Association of Home Builders (NAHB).
About 85% of respondents to a survey conducted by NAHB say lenders were tightening in the second quarter by reducing the amount they are willing to lend and lowering the loan-to-value (or loan-to-cost) ratio.
Credit for residential land acquisition, development and construction (AD&C) continued to tighten and became even more expensive for most types of loans, according to NAHB’s survey, which was conducted in July and asked specifically about financing conditions.
Half of respondents also reported tightening by increasing documentation, increasing the interest rate, and requiring personal guarantees or other collateral unrelated to the project.
The net easing index derived from the survey posted a reading of -33.7 in the second quarter. (The negative number indicates that credit was tighter than in the previous quarter.)
The comparable net easing index based on the Federal Reserve’s survey of senior loan officers posted a similar result, with a reading of -23.8 — marking the 10th consecutive quarter of borrowers and lenders both reporting tightening credit conditions.
In the second quarter, the contract interest rate increased on all four categories of AD&C loans tracked in the NAHB survey:
- 8.40% in 2024 Q1 to 9.28% on loans for land acquisition,
- 8.07% to 9.05% on loans for land development,
- 8.24% to 8.98% on loans for speculative single-family construction, and
- 8.38% to 8.55% on loans for pre-sold single-family construction.
Photo: paulbr75