Dive Brief:
- Credit standards for acquisition, development and construction loans tightened in the fourth quarter of 2015, but the amount of outstanding AD&C loans has grown year-over-year for the past five quarters in the range of 16%-17.5%, the National Association of Home Builders reported.
- According to the latest Federal Reserve Board Senior Loan Officer Opinion Survey, a net share of 12.7% of respondents said that lending standards at their respective commercial banks had tightened. The proportion of respondents who reported that standards had tightened, on net, was greater at large regional banks (18.7%) than at large national banks (7.7%).
- According to the survey, smaller banks, like community banks and credit unions, hold the majority of the outstanding amount of AD&C loans, although the NAHB reported that the amount held at credit unions is relatively small — $1.08 billion in 2015.
Dive Insight:
The fourth-quarter tightening of credit indicates a turn from the optimism of the third-quarter 2015 AD&C Lending Survey, which described a relaxing of standards, with a net 30.3% of builders and developers responding that, overall, lending standards on AD&C loan availability had eased in the third quarter of 2015. That report marked the 10th consecutive quarter of improvement.
Although the Senior Loan Officer Opinion Survey is from the lender perspective, it still signals a departure from the easing that developers and builders hoped would be a longer trend.
However, the increase in the outstanding loans held at smaller banks is in line with an observation from National Association of Realtors Chief Economist Lawrence Yun. In an NAR 2016 forecast report, he said that the loosening of credit requirements is especially important for those involved with deals of $1 million or less and those with clients who rely on financing from local community banks and credit unions.
