Construction Loans Are Increasing With More Availability

In the third quarter of 2021, average effective interest rates for land acquisition, land development, and single-family construction rose for the first time after a downward year-over-year trend, the NAHB’s Eye on Housing reports. 

Roughly 13 percent of NAHB builders are reporting more availability of credit for land acquisition while 14 percent saw improved conditions for land development. Lastly, despite a record shortage of buildable lots, 21 percent of builders found greater availability for single-family construction credit. 

In the third quarter of 2021, the average effective rate (based on  rate of return to the lender over the assumed life of the loan taking both the contract interest rate and initial fee into account) increased from 6.15 in the second quarter of 2021 to 6.50 percent in the third quarter of 2021 on loans for land acquisition, from 7.15 to 8.33 percent on loans for land development, from 8.09 to 8.55 percent on loans for pre-sold single-family construction, and from 7.40 to 8.37 percent on loans for speculative single-family construction.

Changes in the effective rate may be due to changes in either the contract interest rate, or in the initial points charged on the loan.  On three categories of AD&C loans, the average contract rate and average points both increased in the third quarter.  On land acquisition loans, the contract rate increased from 4.63 to 4.74 percent while the initial points increased from 0.69 to 0.88.  On development loans, the contract rate increased from 4.63 to 4.74 percent while the points increased from 0.64 to 0.89.  And on loans for pre-sold single-family construction, the contract rate increased from 4.32 to 4.49 percent while the points increased from 0.54 to 0.77.

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