WASHINGTON — New data shows that large commercial banks are increasing their originations of single-family construction loans, but these loans still represent a small percentage of their total assets.
With improving conditions in the housing market, acquisition, development and construction loans held by large banks rose from $20.8 billion at the end 2013 to $36 billion on March 31 of this year, according to the National Association of Home Builders' June 27 "Eye on Housing" report.
"Larger banks' holdings of residential construction loans are rising faster than community banks suggesting that these larger banks are returning to the business," said Michael Neal, a senior economist at the homebuilder association.
Most banks had curtailed their construction lending after the housing bust, with outstanding AD&C loans falling from $203 billion in 2007 to $42.3 billion in 2012.
But even though construction lending has rebounded, the percentage of AD&C loans held on the books of large banks has stayed at roughly 0.2% of assets since 2012, according to the report. In other words, the growth is largely keeping up with overall growth in the institutions' assets.
Meanwhile, AD&C loans in the portfolios of community banks have risen from $23 billion in 2013 to $34.67 billion as of March 31; community banks hold 49% of bank-originated residential AD&C loans. AD&C loans are the second-largest asset category for most community banks, after farm-related loans. Overall, commercial banks held $70.7 billion in residential AD&C loans as of March 31.
Commercial banks provide over 80% of single-family AD&C loans and remain the "primary source of construction lending," according to a fourth-quarter 2016 survey by the homebuilder association.
Nearly 90% of respondents said "commercial banks were the primary source of loans for land development, 84% for single-family speculative constructions, 80% for land acquisition and 79% for single-family presold construction," the fourth-quarter survey said.
According to the homebuilder group, builders and developers reported easing credit conditions for acquisition, development and single-family construction loans in the first quarter of 2017. "The pace of easing over the quarter took place across all forms of AD&C loans, with the largest changes occurring on loans for land development and single-family construction," according to the May 23 "Eye on Housing" report.