Builders and Developers Report Worsening Credit Conditions in Q3 2022

During the third quarter of 2022, credit on loans for Acquisition, Development & Construction (AD&C) became more costly and more difficult to obtain, according to NAHB Eye on Housing. Net easing indices from NAHB and the Fed were negative in Q3 2022, indicating tighter credit for builders and developers.

Of all respondents who reported tighter credit conditions, 74% of builders and developers cited lenders who raised the interest rate on AD&C loans, while 60% said lenders reduced the amount they were willing to lend, and 46% encountered lenders who lowered the allowable Loan-to-Value or Loan-to-Cost ratio.

Meanwhile, the average effective rate (based on rate of return to the lender over the assumed life of the loan taking both the contract interest rate and initial fee into account) increased on three of the four categories of loans tracked in the AD&C Survey: from 9.55 to 9.67 percent on loans for land development, from 8.48 to 9.95 percent on loans for speculative single-family construction, and from 8.63 to 10.76 percent on loans for pre-sold single-family construction.

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