Credit availability for residential Land Acquisition, Development, and Construction (AD&C) tightened further in Q4 2024, according to recent surveys from the National Association of Home Builders and the Federal Reserve. According to NAHB’s Eye On Housing blog, the NAHB net easing index stood at -16.3, while the Fed’s was at -9.5. This marks the 12th consecutive quarter of restricted credit availability for AD&C loans for both indicators.
Results from the NAHB survey indicate that the most common ways in which lending tightened during Q4 were by lenders lowering the loan-to-value or loan-to-cost ratio (as reported by 72% of builders and developers surveyed) and reducing the amount they're willing to lend (61%).
Contract interest rates for all four categories of AD&C loans tracked in the NAHB AD&C survey declined slightly in Q4 2024, marking the second consecutive quarter of interest rate declines. Land acquisition loan rates fell from 8.50% to 8.48%, land development loans dropped from 8.83% to 8.28%, speculative single-family construction loans decreased from 8.54% to 8.34%, and pre-sold single-family construction loans saw the largest drop, decreasing from 8.11% to 7.75%.
In addition to the contract rate, initial points charged on the loans can be an important component of the overall cost of credit, especially for loans paid off as quickly as typical single-family construction loans. In the fourth quarter, trends on initial points were mixed. The average points declined on loans for land acquisition, from 0.77% in 2024 Q3 to 0.55%.
However, average points increased quarter-over-quarter on loans for land development (from 0.68% to 0.75%), pre-sold single-family construction (from 0.26% to 0.67%) and speculative single-family construction (from 0.49% to 0.64%). Read more
