David Crowe, Chief Economist, NAHB, Washington, D.C. dcrowe@nahb.com
Anje Jager/agencyrush.com David Crowe, Chief Economist, NAHB, Washington, D.C. dcrowe@nahb.com

Credit for home builders remains extremely tight. An NAHB quarterly survey of home builders assesses the availability of production credit. For both new and existing credit, the tight conditions that prevailed in 2008 and early 2009 continue with only the slightest change.

The quarterly survey asks about availability of new land acquisition, land development, and single-family and multifamily construction loans (AD&C). The results generate a diffusion index similar to the Federal Reserve’s Senior Loan Officer Survey of banks’ assessment of credit conditions for Commercial Real Estate (CRE) loans, the category of bank loans that includes AD&C loans for home builders. Both indexes showed similar tightening during the credit tightening period from early 2006 through mid-2008. However, the Fed survey has since shown an end to tightening whereas the NAHB survey shows continued tightness. The Fed’s index has returned to the early 2006 level while the NAHB home builder index has fallen back to late 2007 levels.

In a recent monthly survey, the NAHB posed some of the quarterly survey questions to a wider geographic panel of home builders. Responses of builders were broken down into two halves: those from states beginning to see some recovery and those from states with continued housing market stress. State economic and housing conditions were categorized by four metrics:

Homeowner vacancy rates indicate inventory levels. Healthy states have an average vacancy rate 0.3 percentage points above normal while weak states average one percentage point above normal.

Mortgage foreclosure rates indicate mortgage stress and house price changes. Healthy states have foreclosure rates that are 2.5 percentage points below the national level while weak states have average foreclosure rates at or above the U.S. average.

Population change indicates fast or slow growth. Healthy states are growing at 0.2 percentage points greater than the U.S. and weak states are growing at an average rate of 0.23 percentage points below the U.S.

Finally, the unemployment rate indicates job market conditions and consumer income. Healthy states have unemployment rates that are 2.3 percentage points less than the national rate while weak states have average unemployment rates 0.25 points above the national level. The four independent indicators were combined and ordered from healthiest states to weakest states.

Builders described the availability of single-family AD&C credit compared to six months ago. Given the wide gap in states’ economic health, a similar difference in credit availability was expected. The results, however, do not provide the expected conclusion. In fact, there is virtually no difference in credit access between the 25 states with the best market conditions and the 25 with the worst market conditions.

The virtual equality in availability measures across two significantly different economic and housing markets is compelling evidence that banks and banking regulators are not differentiating between recovering markets and stressed markets when making decisions about loans to home builders.

The NAHB survey and analysis show virtually no differentiation by market metrics. The potential harm of this one-size-fits-all approach to credit availability will stifle the housing recovery and ultimately the economic recovery.

Bank balance sheets confirm the continued decline in bank lending to builders. In the past three years, banks have collectively increased their assets by 13 percent but have decreased their holdings of CRE loans by 3 percent. Between 2009 and 2010 alone, CRE balances at banks declined $145 billion.

Without a return to lending to home building, the nascent housing and economic recovery cannot go forward, nor will the three million jobs that the industry can add if production returns to what is needed to supply the expected new households.