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6 BuildersOutlook 2024Issue8
Tightened Credit for Builders in Second Quarter
During the second quarter of 2024 , credit for residential Land Acquisition , Development & Construction ( AD & C ) continued to tighten and became even more expensive for most types of loans , according to NAHB ’ s survey on AD & C Financing . The survey was conducted in July and asked specifically about financing conditions in the second quarter , predating the release of some relatively weak economic data that has raised prospects for monetary policy easing . 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 . According to the NAHB survey , the majority ( 85 %) of respondents noted that 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 .
Half of respondents also reported tightening by increasing documentation , increasing the interest rate , and requiring personal guarantees or other collateral unrelated to the project .
As credit becomes less available , it also tends to become more expensive . 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 .
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