Normal housing markets are like stars aligned. They're hoped for, or wistfully looked back upon, but hardly ever present. Three such stars home builders need for new-home markets to function sanely are fundamental demand, building lots, and capital to put in place. This analysis will look at one of those stars, access to capital, which has tripped an inflection-point wire and kicked into alignment with at least signs of fundamental demand.

This past year plus, a few buyer types in a couple of dozen submarkets jumped on rock-bottom interest rates and prices to trade ready cash for impressive value in new residential properties. Those buyer types could mostly be described as cash-flush, well-to-do opportunists who were unencumbered by the need to leverage the sale of a current property to pounce on what they wanted. There were enough of such buyers to signal a trend, which telegraphed a movement, which sparked systemic encouragement that housing's healing and full-recovery were nigh.

One condition that held back recovery, however, was that even though both household and business balance sheets had made great progress in clearing mountains of debt and distress, and even though prospective home buyers had begun to clamor for new-home options, the housing lending complex--whose most noteworthy players include nationals and heavy-hitting regionals like Wells Fargo, Bank of America, Citi, J.P. Morgan, U.S. Bank, Regents, M&T, Cardinal, Union Bank, Bank of the West, and Texas Capital--needed more time before they kicked back into gear.

They needed more time partly because of the widespread value destruction in AD&C commercial lending that had occurred in the mid- to late 2000s, partly because they needed to clear through their own business and balance sheet issues, and partly because regulators under the name of Dodd-Frank were dickering around with new policy, and amping up the uncertainty that goes with doing business.

So, now we've begun to see signs of a tipping point for home builders who need access to either enterprise/entity financing or some form of project financing that will allow them to purchase land, build the land into lots, and then build homes on those lots so that they can be sold to home buyers.

This past week, National Association of Home Builders tax and policy expert Rob Dietz posted analysis of new data from the Federal Deposit Insurance Corp. that shows the inflection point--the pivot from negative to positive--in newly originated AD&C loans. Dietz writes:

It appears the period of dramatic declines in the outstanding stock of AD&C loans ended in 2012, and recent data confirm that net lending is on the rise.

Wall Street Journal staffer Kris Hudson picked up on Dietz' analysis with his piece, "Hope on Horizon for Home-Supply Crunch: Builder Borrowing Picks Up." The key takeaway from Hudson's analysis:

While lenders aren't keeping their doors tight, they aren't wide open either. Particularly difficult to obtain are loans for land acquisition and development, which entails installing infrastructure such as roads and utilities—endeavors that lenders consider more risky than home construction. Smaller, cash-strapped builders still face a challenge in landing loans.

"They're still not able to get financing in the amounts and volumes needed for the industry," said Jerry Howard, chief executive of the National Association of Home Builders. The builders association is shepherding the formation of two lending pools from which investors would make development and construction loans to small builders.

One of those "lending pools" is a $100 million fund from Columbia, Md.-based North Star Finance, which has set up $10 million-or-less opportunities for financing from NAHB members.

North Star principal Tom Ellis notes:

To provide 100% debt financing for small to medium sized home builders that require in acquisition, development and construction loans
between of $1 million to $10 million dollars.

Among the features of the North Star program:

100 % debt Financing to the cost to build – includes the purchase of the land. (Lending allows up to 5% in hard cost and up to 4% for supervision costs, not including legal, accounting, vehicle , telephony, model home expenses, office expenses – including staff/salaries, rents, workers compensation and general liability coverings, marketing, advertising, sales commissions, sales taxes, entertainment, signage, postage, computer or related and printing.)
a) Deferred payment during construction.
b) Permanent financing offered once construction is completed
or stabilized.
? Non Fico Score Driven.
? $30,000 refundable Earnest Money and processing
fee deposit.
a) Held in Escrow until Term Sheet is acknowledged by both
b) Refundable by North Star if Private investor declines the loan
as required by Maryland department of real estate.
c) Non refundable if Builder defaults on term sheet
requirements or fraud by builder is discovered.
d) At Builders discretion, can be rolled to the loan balance and
refunded to builder at closing.

Ellis says it's possible to structure these projects in two-to-three weeks vs. the 90-to-120 day time periods it could take to qualify and get financing via other channels.

Word is that in many markets, stronger regional and single-market builders now have two-to-three lenders competing aggressively for their business. "There's a very competitive lending market right now," said an executive close to the capital flow through and into the private home building community.

Among the ways lenders compete include the strength of their brand, the structure of the financing, the administrative execution which must account for a lot of back-and-forth flow into and out of the arrangement, and finally spreads and advance rates, where the rubber hits the road.

"We're not at the point where there's a great deal of pressure on spreads and advanced rates, but we'll probably get there," said the executive familiar with commercial lending to builders.

We know that the geography, the timing, the market position, and the individual business pro forma all play a part in what's going on with AD&C money flow. Still, we'd like to get your two-cents on whether the field has begun to tilt in your favor as you look out at those hard-to-come-by lots and wonder how you're going to put dibs on them.