Residential AD&C Loan Volume Tight But Expanding

Outstanding residential acquisition, development, and construction (AD&C) loan volume expanded 4.7 percent in the second quarter of 2015.

The National Association of Home Builders (NAHB) found that AD&C loans grew for the ninth consecutive quarter, but availability of these loans remains tight, hindering home construction.

The outstanding stock of 1-4 unit residential construction loans made by institutions insured by the Federal Deposit Insurance Corp., totaled $56.1 billion in the second quarter, an increase of $2.498 billion. This stock rose 4.7 percent from the first quarter, according to data from the FDIC and NAHB analysis.

"It is worth noting the FDIC data represent only the stock of loans, not changes in the underlying flows, so it is an imperfect data source," said Robert Dietz, VP for Tax and Market Analysis for NAHB. "Nonetheless, the consistent growth in the outstanding stock of AD&C loans is a positive development."

Since the first quarter of 2013, the report found that the stock of outstanding home building AD&C loans has grown by 37.6 percent.

On a year-over-year basis, the stock of residential AD&C loans is up 16.4 percent from the second quarter of 2014.

Other NAHB data suggests that lending conditions are improving, but recent Federal Reserve data shows some tightening toward the commercial lending sector. However, lending is still tighter than earlier years, with the current stock of existing residential AD&C loans 72.5 percent lower than the peak level of AD&C lending of $203.8 billion reached during the first quarter of 2008.

"Despite the steady increases in residential AD&C lending, there exists a lending gap between home building demand and available credit," Dietz said. "This lending gap is being made up with other sources of capital, including equity, investments from non-FDIC insured institutions and lending from other private sources, which may in some cases offer less favorable terms for home builders than traditional AD&C loans."