Builder Credit Tightens on Virus Concerns

For the first time since 2012, builders and developers reported overall tighter credit conditions on loans for land acquisition, development and single-family construction (AD&C) in NAHB’s AD&C financing survey for the first quarter of 2020. Most builders reported that lenders are pulling back because of coronavirus concerns.

The net tightening index derived from the NAHB survey jumped to 22.7, about 40 points higher than the -22.3 reported in the fourth quarter of 2019. The index is constructed so that positive numbers indicate tightening of credit, with larger positive numbers indicating more widespread tightening.

A similar index from the Federal Reserve’s survey of senior loan officers also showed a spike in tightening. The Fed index jumped to 52.4 in the first quarter of 2020, 45 points higher than the 7.4 reported in the fourth quarter of 2019 and the highest it’s been since 2009.

The NAHB net tightening index uses information from questions that ask builders and developers if availability of credit has gotten better, worse, or stayed the same since the previous quarter. In the first quarter of 2020, none of the NAHB builders said availability of credit for land acquisition had gotten better, compared to 26% who said it got worse. For land development, 5% said credit conditions improved, compared to 27% who said it got worse. For single-family construction, 6% reported credit conditions were better in the first quarter of 2020 than in the final quarter of 2019, while 26% said they got worse.

The number one reason credit conditions got worse was that “lenders are pulling back because of coronavirus concerns” (57%), followed “lenders are lowering their LTV or LTC ratios” and “lenders are reducing the amount willing to lend” (both reported by 46% of respondents).

NAHB Senior Economist Paul Emrath provides more details in this Eye on Housing blog post.