The majority of residential construction loans are owned by small banks with $10 billion or less in assets, according to the National Association of Home Builders. Banks with assets between $100 million and $1 billion have the largest share of residential construction loans relative to their total assets.
FDIC-insured institutions have increased 1-4 residential construction loans as the lending environment relaxes somewhat. During and in the years immediately following the recession, lending for 1-4 construction loans decreased 73% to $42.3 billion. By 2016, they had grown to $69.6 billion.
Eighty-four percent of builders and developers surveyed by the NAHB said commercial banks were the main lending source for single-family spec construction while 79% reported similarly for pre-sold single-family homes.
Tight lending in the residential construction market continues to play a role in the slow recovery. The volume of acquisition, development and construction loans slowed at the end of 2016, Eye on Housing reported, though the 1.8% rise was the 15th-straight quarter of growth. Year-over-year, residential construction loan volume was up 14.3% in the fourth quarter of 2016.
In multifamily construction, the slowing apartment market is driving some banks to step back from offering loans for new projects, according to The Wall Street Journal. For developers that want to press on, a lack of traditional financing is forcing them to look to higher-interest loans from regional banks.
On the commercial side, construction and development loans surpassed other categories last year, leaving regulators concerned. Still, a positive market outlook among construction executives, along with talk of a stronger investment in infrastructure spending from the Trump administration, supports continued lending in the space for now.
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