According to a recent survey conducted by the National Association of Home Builders (NAHB), nearly two-thirds of single-family home builders say that credit restrictions are putting a hold on their housing production. The survey focused on acquisition, development, and construction (AD&C) financing for residential builders, 75 percent of whom reported less than $5 million in revenue. Two-thirds of respondents said they have suspended single-family construction projects until financing conditions improve.
Sixty-three percent of builders surveyed reported that the second quarter of 2009 saw a drop in availability of credit for single-family construction loans. According to 80 percent of these respondents, this deterioration of credit availability is the direct result of lending institutions lowering the allowable loan-to-value ratio, while 76 percent said that lenders simply are not making any new loans. Seventy-five percent reported that lending institutions have reduced the amount they are willing to lend, and 62 percent indicated that lenders are requiring builders to give personal guarantees or put up collateral unrelated to the project.
Builders who have outstanding loans are having problems getting extensions of credit and refinancing those loans, according to Michelle Hamecks, NAHB’s assistant vice president for housing finance. She notes that 40 percent of survey respondents reported tightening conditions on outstanding loans.
The survey also found that although federal banking regulators say they are not influencing lending institutions’ decisions to stop making loans or to liquidate outstanding loans, builders said that the number one reason lenders have been using to justify restricting new loans or tightening the terms of outstanding loans is that they are forced to do so by regulators. “We’re working with regulators and lenders, and we’re trying to get more flexibility on loan workouts,” Hamecks notes.
NAHB’s leadership maintains that the economy’s recovery hinges on the health of the housing industry, which will not recover until credit begins flowing again. The lack of available financing, combined with increased pressure on builders carrying outstanding loans are resulting in stalled projects and unnecessary foreclosures and losses for builders.
“With the pending expiration of the $8,000 first-time home buyer tax credit, these challenges threaten to halt any positive developments we have seen in the housing market in recent months,” said NAHB chairman Joe Robson, founder and president of Tulsa, Okla.-based residential developer The Robson Companies, in a statement about the survey results.
