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US homebuilders are facing their biggest credit crunch in more than a decade, with banks cutting lending for residential construction by more than 10 per cent.
US banks had $92bn of loans outstanding to fund the construction of dwellings for one to four families in the quarter to the end of June, down from $102bn a year ago.
This is the largest year-on-year drop in more than a decade, according to an analysis by BankRegData of the most recent data from the Federal Deposit Insurance Corp. It was also the fifth consecutive quarter in which lending for home construction fell.
Cris deRitis, deputy chief economist at Moody’s Analytics, said the impact on housing supply might not be felt immediately, because many homes were already under construction. “But the longer credit remains tight, it will certainly have an impact on the builders over time.”
Housing starts are on track to fall 16 per cent this year, government data shows.
The slowdown in lending could be because of weak demand driven by a slow housing market, deRitis said, but as interest rates came down sales might pick up. A lack of credit for construction would hold back supply and meant prices were more likely to remain high, he added.
Housing affordability has become an economic and political issue in the US: prices have been rising despite several years of higher mortgage rates, partly because of supply shortages.
Democratic presidential nominee Kamala Harris has proposed support including as much as $25,000 for downpayments for first-time buyers, as well as tax credits for builders.
Many of the regional banks that specialise in lending to homebuilders have been hit hard by problems in the wider commercial real estate market that include an oversupply of office space and falling valuations.
The biggest US lender to homebuilders is US Bank, which has $3bn in outstanding residential constructions loans. It separately has $780mn in delinquent loans tied to commercial real estate, a figure that increased by $140mn in the second quarter alone.
The FDIC data does not say whether the drop in lending is because banks have cut credit or because there is less demand for loans from home builders.
But a Federal Reserve survey of more than 60 banks found that about a third had tightened standards for construction loans.
None of the banks said they had increased credit to home and other real estate developers.