By Paul Emrath | Eye On Housing
The failure of several banks in 2023 and the ensuing stress in U.S. financial markets have had an effect that some builders and developers are beginning to notice, according to two recent NAHB surveys. In one of the surveys, roughly three-in-five builders and developers reported that loans for land acquisition, land development and speculative single-family construction have become more difficult to obtain specifically as a result of the aforementioned financial stresses. Compared to this, the effect of the bank failures and financial stress has been less noticeable on loans for pre-sold single-family construction, but more noticeable on loans for multifamily development.
In the first quarter of 2023, U.S. financial markets experienced a substantial shock when Silicon Valley Bank in Santa Clara, California failed. On March 10, the government declared the bank insufficiently liquid and insolvent and seized its assets. Two days later, a similar fate befell Signature Bank in New York. Almost immediately, market observers began speculating that banks would curtail their lending activities as a result. By mid-April, when NAHB was ready to field its first-quarter survey on Acquisition, Development and Construction (AD&C) Financing, NAHB economists judged that enough time had passed for some developers and builders to notice this effect, if it existed.
That in fact proved to be the case. When responding to the NAHB survey, 58 percent of developers were able to report that already it had become more difficult to obtain loans for land development due to the bank failures. One-fourth of them said it had become more difficult to a minor extent. One-third said it had become more difficult to a major extent. Twenty-seven percent said they didn’t know. A substantial percentage of “don’t knows” is what you would expect given that not all developers are continually in the market for loans, and it was only a matter of weeks since the initial shock of the two bank failures. There were no important differences in the percentages if the loans were for land acquisition only, rather than for land development more comprehensively.
