Slower Growth for AD&C Loans

By on Eye on Housing

(June 5, 2023) — Despite some negative reporting about private builder access to acquisition, development and construction (AD&C) financing, the volume of total outstanding loans posted a gain during the first quarter of 2023, albeit at the slowest growth rate since the end of 2020. Nonetheless, interest rates for these loans have increased as the Fed has raised the federal funds rate.The volume of 1-4 unit residential construction loans made by FDIC-insured institutions increased by just 0.6% during the first quarter. The volume of loans increased by $636 million for the quarter. This loan volume expansion places the total stock of home building construction loans at $105.4 billion, a post-Great Recession high.On a year-over-year basis, the stock of residential construction loans is up 14%. Since the first quarter of 2013, the stock of outstanding home building construction loans has grown by 159%, an increase of more than $64 billion.

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. Lending remains much reduced from years past. The current amount of existing residential AD&C loans now stands 48% lower than the peak level of residential construction lending of $204 billion reached during the first quarter of 2008. Alternative sources of financing, including equity partners, have supplemented this capital market in recent years.

The FDIC data reveal that the total decline from peak lending for home building construction loans continues to exceed that of other AD&C loans (nonresidential, land development, and multifamily). Such forms of AD&C lending are off a smaller 14% from peak lending. For the first quarter, these loans posted a 3.2% increase.