US housing development loans on the rise again

30 August 2013 22:28  [Source: ICIS news]

WASHINGTON (ICIS)--US banks are more willing to fund housing development projects, a major contractors group said on Friday, with loans issued to builders increasing for the first time since early 2008 and suggesting more home building ahead.

The National Association of Home Builders (NAHB) said that the long, recession-driven slide in housing development loans ended in the second quarter of 2012, and the outstanding value of those loans has begun to climb.

That funding for builders, known as acquisition, development and construction (ADC) loans, are needed by developers to acquire land, put in sewer lines, other utilities, streets and sidewalks before they can build the first house.

During the 2008-2009 Great Recession, the volume of those loans fell precipitously along with the deflating housing bubble. 

Even after the recession ended in June 2009, the availability of ADC funds remained extremely tight as gun-shy banks and other investors were reluctant to get back into the real estate market.

But those squeaky-tight lending policies began to ease around the middle of last year, according to Robert Dietz of NAHB’s economic and housing policy department.

Dietz said that for the first time since the first quarter of 2008, the total amount of ADC loans outstanding for residential construction rose on a quarter-over-quarter basis.

The net increase in lending volumes rose by $22m (€16.7m) in the second quarter of 2012 compared with the first quarter to a total of $43.56bn, Dietz said, citing data from the Federal Deposit Insurance Corporation (FDIC).

That increase was small, he noted, but it was a gain and it might be even bigger.

“Given on-going payoffs and discharges of existing ADC loans” he said, the actual amount of originated lending for ADC purposes was considerably larger but cannot be estimated using the FDIC data.

In addition, he said, the amount of ADC loans made by FDIC-insured banks rose by $837m during the second quarter of this year, a quarterly gain of 2%.

All of this, said Dietz, “suggests overall improving conditions for ADC lending”.

That means that home builders are planning more residential subdivision projects and, after putting in streets and utilities, soon will be building more homes.

More home building in turn benefits the US chemistry sector, because housing is a major downstream consuming industry for a wide variety of chemicals, resins and derivative products used in construction of homes and as components in or production of end-use items such as carpeting, paints, furniture, appliances and others.

($1 = €0.76)

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By: Joe Kamalick
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