"What lies beneath that tightening, however, is a larger structural shiftone that isn't temporary. Nor is it likely to unwind even if rates decrease next year. Local and regional banks, once the mainstay of AD&C loans to private builders, are reducing their exposure to land, development, and construction loans. National banks have been pulling back for years. Regulators have increased the costs of holding AD&C loans on bank balance sheets. Capital requirements have become stricter."
"The net easing index derived from the survey posted a reading of -11.0 (the negative number indicating that credit tightened since the previous quarter). This is in reasonably close agreement with the third quarter reading of -6.6 for the similar net easing index produced from the Federal Reserve's survey of senior loan officersmarking fifteen consecutive quarters of tightening credit conditions reported by both builders and lenders."
Credit conditions for Land Acquisition, Development & Construction (AD&C) loans tightened in Q3 2025, with NAHB's net easing index at -11.0 and the Fed's similar index at -6.6. Fifteen consecutive quarters of tightening have been reported by builders and lenders. Local and regional banks are reducing exposure to AD&C loans while national banks have been pulling back for years. Regulators have raised the costs and capital requirements for holding AD&C loans, and post-2023/2024 bank failures prompted boards to demand cleaner books and less concentration risk. Builders face lower leverage, more recourse, greater cash outlays, slower processes, and tighter covenants, likely persisting even if rates fall.
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