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AD&C Loans Expand for the First Quarter

growthIn the National Association of Home Builder’s (NAHB) Eye on Housing blog, Robert Dietz, VP for tax and market analysis, found that the volume of residential AD&C loans outstanding expanded 4.8 percent during the first quarter of 2015. This will mark the 8th consecutive quarter of growth.

“The tight availability of acquisition, development and construction (AD&C) loans has been a factor holding back a stronger rebound in home construction,” Dietz said.

Data from the Federal Deposit Insurance Corporation (FDIC) and NAHB analysis revealed that, the outstanding stock of 1-4 unit residential construction loans made by FDIC-insured institutions rose by $2.438 billion during the first quarter. This was a quarterly increase of 4.8 percent making a total stock of $53.6 billion.

Dietz also reported, the stock of residential AD&C loans has increased by 17 percent from the first quarter of 2014, on a year-over-year basis. The stock of outstanding home building AD&C loans has grown by 31.5 percent since the first quarter of 2013, an increase of $12.9 billion.

“It is worth noting the FDIC data represent only the stock of loans, not changes in the underlying flows, so it is an imperfect data source,” Dietz added. “Nonetheless, the consistent growth in the outstanding stock of AD&C loans is a positive development. NAHB surveys of builders also suggest improving lending conditions.”

Despite improved conditions, lending still remains lower than previous years, the author noted. The current stock of existing residential AD&C loans now stands 73.7 percent lower than the peak level of $203.8 billion reached during the first quarter of 2008.

FDIC says that the total decline from peak lending for home building AD&C loans continues to exceed that of nonresidential, land development, and multifamily AD&C loans. These forms of AD&C lending are off a smaller 56 percent from peak lending. This class of AD&C loans has now registered seven quarters of expansion.

Land development loans connected to home building are also grouped in this other class, Dietz says. NAHB survey data says that land development loans are tougher to obtain than loans for residential construction purposes.

“Despite the recent increases in residential AD&C lending, there exists a lending gap between home building demand and available credit,” Dietz concluded. “This lending gap is being made up with other sources of capital, including equity, investments from non-FDIC insured institutions and lending from other private sources, which may in some cases offer less favorable terms for home builders than traditional AD&C loans.”

About Author: Xhevrije West

Xhevrije West is a writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.
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