The share of builders reporting problems repaying acquisition, development and construction (AD&C) loans from banks has increased in the past year, survey data collected by the National Association of Home Builders (NAHB) and reported today indicates.
NAHB's survey of 362 builders found 33% said they were having problems repaying land acquisition loans in the second quarter of 2009. The other trouble areas were with land development loans (36% having trouble repaying), single-family construction loans (30%) and multifamily construction loans (21%). In contrast, NAHB's AD&C survey for the April-to-June quarter of 2008 found 25% having trouble on land acquisition loans. The numbers were similarly lower for land development loans (31%), single-family construction loans (28%), and especially multifamily construction loans (12%).
NAHB gets a slightly different response each time it polls builders on their AD&C experiences, but the association's six surveys on the subject over the past year show a steady increase in payment troubles.
The latest poll also found substantial differences between regions; for instance, 39% of respondents in Western states said they were having trouble repaying land acquisition loans vs. just 19% of dealers in the Northeast reporting the same problem.
Nearly fourth-fifths of the builders who said they were having trouble repaying loans said they were using company or personal resources to repay, 64% were seeking a workout with their current lender, 32% were seeking another lender to take over the loan, and 17% were letting the current lender foreclose.
NAHB's findings echo the results of a survey of building material dealers that ProSales conducted this summer that suggested builders and remodelers were repaying their debts to dealers about four and a half days more slowly in August than they did on average in 2008. The 165 pro-oriented dealers participating in the online poll (see summary) said their average days for accounts receivables widened to 49.76 days in August from 45.16 days in 2008.
The NAHB said its survey also found 63% of builders reporting that credit availability for single-family construction loans had worsened during the second quarter of 2009. Four-fifths of the builders who said conditions had gotten worse said lenders were cutting the allowable loan-to-value ratio, 76% said lenders aren't making new loans, 75% said loan amounts were going down, and 62% said lenders are requiring personal guarantees or collateral not related to the project. Partly as a result, two-thirds of respondents said they are putting single-family construction projects on hold until the financing climate gets better.
"Across the country, home builders and developers are reporting a deterioration in credit availability and intensifying pressure on borrowers with outstanding loans," said NAHB chairman Joe Robson, a home builder from Tulsa, Okla. "Lenders are cutting off loans for viable new housing projects and producing unnecessary foreclosures and losses on AD&C loans."
Both NAHB and the National Lumber & Building Material Dealers Association have called on Congress to extend the $8,000 first-time home buyer tax credit.