Residential construction lending rose to post-recession high in 4Q

Contractors secure a wall section on a home under construction at the Toll Brothers Inc. Cantera at Gale Ranch housing development in San Ramon, California, U.S.

Bloomberg/Photographer: David Paul Morris

Residential construction lending jumped to heights not seen since the Great Recession during the fourth quarter, but it’s likely to remain far below the level needed to serve market appetite for more affordable inventory unless President Biden’s bid to reduce supply chain disruptions is successful.

Financing for one-to-four-family home construction rose by $977 million during the last three months of 2021 to $87.9 billion outstanding, according to Federal Deposit Insurance Corp. data analyzed by the National Association of Home Builders. That’s the highest amount seen since the market bottomed out roughly 10 years ago. Year-over-year, the outstanding supply of builder financing in this category was up 13.6% during the fourth quarter of last year.

The gain stands in contrast to a period early in the pandemic when some companies pulled back from construction lending in response to uncertainties around infection rates, social distancing and market disruption. Year-over-over declines were seen during the first three quarters of 2020 as a result.

While the outstanding supply of residential construction lending has made a strong recovery from that disruption, it’s still far lower than it was at its peak during the housing boom that occurred just prior to the Great Recession.

“Lending remains much reduced from years past,” said Robert Dietz, chief economist and senior vice president for economics and policy at the NAHB, in a report.

Some of the gains in the outstanding amount may stem from increased loan sizes in a high-priced housing market where supply-chain disruptions and high lumber prices add to costs. While those developments increase the amount of financing available, they are putting downward pressure on new-home sales.

However, President Biden in his State of the Union address Tuesday night pledged to keep taking steps to lessen these concerns.

“Instead of relying on foreign supply chains, let’s make it in America,” Biden said.

That could benefit the housing market, according to Jacob Channel, LendingTree’s senior economic analyst.

“If the administration continues to take steps to mend and strengthen these chains, it could result in lower costs for raw materials used in housing construction,” Channel said in a report. “This will make it easier for builders to construct more homes and could help reduce the housing supply crunch that has helped push home prices higher.”

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