Builders and developers have reported that credit conditions for acquisition, development, and single-family construction (AD&C) have been easing in the past few months, according to the Q1 AD&C Financing Survey from the National Association of Homebuilders (NAHB).
The overall net tightening index based on the AD&C Financing Survey was -25.0 in the first quarter of 2017, an improvement over -7.3 in the fourth quarter of 2016 and -13.3 one year ago. According to the AD&C survey, credit standards on each of land acquisition, land development, and single-family construction loans eased over the past year as well, with standards on land development loans recording the largest change in net easing.
The NAHB notes that eased lending standards are linked with growth in the volume of residential construction loans held at banks, and by extent, the growth in residential construction as a whole.
The National Association of Realtors reported that sales of brand-new homes are expected to jump 10.7 percent from 560,000 in 2016 to 620,000 this year, and the historically low inventory has been pushing for increased construction.
However, despite these optimistic numbers, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced Monday that new residential sales for April were down 11.4 percent from the revised March rate of 642,000. This puts the seasonally adjusted annual rate at 569,000.
As a result, many builders are moving toward built-for-rent construction. Bloomberg reports that more and more investors are building rental homes themselves to make up for the gaps in inventory. While newly-constructed homes may cost more than used and distressed sales, builders influence this market by offering discounts to investors looking to build rent homes, and early maintenance and repair costs are much lower. Building entry-level homes for ownership as an affordable price level has proved difficult for many, and rental may be the solution.