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Credit conditions for builders for land acquisition, development, and construction (AD&C) remained tight to end 2023, according to the NAHB’s survey of AD&C Financing and Federal Reserve data. However, the index values suggest, while still tight, credit conditions are not as tight as they were earlier in 2023.

The NAHB index posted a reading of -19.7, compared to -49.3 in the third quarter, while the Fed’s index posted a reading of -39.7 compared to -64.9 in the third quarter. Although both the NAHB and Fed indices have been in negative territory for eight consecutive quarters, the fourth quarter 2023 readings were as close to positive as either index has been since the first quarter of 2022.

According to the NAHB survey, the most common ways in which lenders tightened in the fourth quarter were by reducing the amount they are willing to lend (cited by 73% of the builders and developers who reported tighter credit conditions), increasing the interest rate on the loans (69%), and lowering the allowable Loan-to-Value or Loan-to-Cost ratio (65%).

Meanwhile, results from the NAHB survey on the cost of the credit were mixed. Quarter-over-quarter, the average contract rate remained the same on loans for land acquisition at 8.31% but increased from 7.78% to 8.12% on loans for land development, and from 8.37% to 8.40% on loans for pre-sold single-family construction. In contrast, the average contract rate declined from 8.66% to 8.41% on loans for speculative single-family construction.

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