By: Paul Emrath published in NAHB

Meanwhile, the average effective rate (based on rate of return to the lender over the assumed life of the loan taking both the contract interest rate and initial fee into account) increased on three of the four categories of loans tracked in the AD&C Survey: from 9.55 to 9.67 percent on loans for land development, from 8.48 to 9.95 percent on loans for speculative single-family construction, and from 8.63 to 10.76 percent on loans for pre-sold single-family construction.
These increases were due to increases in both the contract interest rate and the initial points charged on the loans. The average contract rate increased from 6.27 to 6.42 percent on loans for land development, from 5.39 to 6.16 percent on loans for speculative single-family construction, and from 5.24 to 5.85 percent on loans for pre-sold single-family construction. Similarly, average points increased from 0.90 to 0.93 percent on loans for land development, from 0.63 to 0.76 percent on loans speculative single-family construction, and from 0.59 to 0.89 percent on loans for pre-sold single-family construction.
On the fourth category of loans in the AD&C survey (for pure land acquisition) the average effective rate declined slightly, from 8.19 percent to 7.97 percent. Again, this was due to a combined effect of the contract rate and points on the loans moving in the same direction. The average contract rate on land acquisition loans declined from 6.16 to 6.09 percent, while the average points declined from 0.86 to 0.79 percent.
These generally worsening credit conditions are contributing to the weakness in builder confidence reported by NAHB earlier today. Additional detail on current credit conditions for builders and developers is available on NAHB’s AD&C Financing Survey web page.