Credit has been harder to come by for the nation’s builders for a variety of projects, according to a new study just released by the National Association of Home Builders.
That study shows that on an index produced by the association, with zero representing the halfway point between the easing and tightening of credit, trends this spring were decidedly on the tightening side, accounting for a minus 33.7 reading.
A narrative accompanying the study states that credit was tight for both land acquisition projects, as well as development and construction, with a trend line that “continued to tighten and became even more expensive for most types of loans.”
Admittedly, the index’s halfway point has been rarely visited territory in recent years, with an easing of credit seen most dramatically between 2011 and 2015, and again in 2021 and 2022.
The tightening side of the equation has made itself particularly apparent during the 2020 year of the pandemic, and again throughout the last two years. In fact, this most recent NAHB index, reports the narrative, marks the “tenth consecutive quarter of borrowers and lenders both reporting tightening conditions.”
According to Paul Emrath, vice president for survey and housing policy research at NAHB, the interest rate on loans for land acquisitions increased from 8.4% in the first quarter of this year to 9.2% between April and June.
The interest rate for land development loans between those two quarters went from 8.0% to 9.0%, while the rate for speculative single-family construction climbed from 8.2% to just 8.9%.
The additional loan rate for pre-sold family construction projects increased from 8.3% to 8.5% during this same time period.
Putting it all together, Emrath noted that “the average effective rates for land acquisition and speculative single-family construction in the second quarter of 2024 were the highest they’ve been since NAHB began collecting such data in 2018.
However, Emrath added the hopeful note that there’s a “reasonable chance the situation will improve in the third and fourth quarters, as the Federal Reserve has begun signaling its intent to cut rates later this year.”
By Garry Boulard
Image Credit: Courtesy of Pixabay
