Emerging Trend in Construction Loans

In 2018, interest rates for residential acquisition, development, and construction (AD&C) loans had a general upward trend, according to survey data from the fourth quarter of last year.

The National Association of Home Builders' data show that the median interest rate reported by builders and developers varied between 5.75 percent (on loans for pre-sold single-family homes), 5.88 percent on land development loans, and 6.00 percent for both land development and speculative single-family home construction projects. The median rate ticked down from the third quarter for development loans, and the pre-sold construction loan uptick was 25 basis points. Loans for acquisition and spec construction remained unchanged.

Earlier in the year, however, interest rates had been consistently drifting upward. As a result, the median interest rate on the various types of AD&C loans was 37 to 75 basis points higher in the fourth quarter of 2018 compared to the first quarter (when the AD&C survey began collecting data on loan terms). Also in the fourth quarter of 2018, lenders charged a median of 1.00 points on the loans for acquisition, development, and speculative construction; 0.63 points on the loans for pre-sold construction—all up from the third quarter.

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