A number of economic indicators are pointing to improving days ahead for housing and home building. But while housing starts moved up in late 2011, lending for acquisition, development and construction (AD&C) loans for home building purposes continues to decline.
While a substantial part of the reduction since 2008 represents the write downs of bad loans, it is also the case that the drop reflects restrictive lending practices for emerging housing demand. According to Statistics of Banking data from the FDIC, the total stock of outstanding AD&C loans for 1-4 unit properties totaled $44.9 billion in the 4th quarter of 2011. This is 78% lower than the peak level of AD&C lending of $203.8 billion reached during the first quarter of 2008.
However, the quarterly declines for AD&C lending have been slowing. The fourth quarter total was 5.4% lower than the third quarter figure, which in turn was 6.7% lower than the second quarter of 2011. Before mid-2011, quarterly declines averaged about 10%.
Moreover, the constriction of home building AD&C lending exceeds that of other construction loans. All other AD&C lending are off 55.5% from the peak, compared to the nearly 80% decline for home building.