AD&C credit tight in Q1, but NAHB index shows pressure easing

Credit conditions for residential land acquisition, development and construction (AD&C) loans tightened again in the first quarter, but at the slowest pace in four years, according to a National Association of Home Builders analysis released Friday.

The NAHB’s net easing index for builder and developer credit came in at -2.7 in the first quarter of 2026, up from more negative readings in recent years. A negative score indicates lenders, on balance, made it harder to obtain or renew AD&C credit compared with the prior quarter.

While still signaling tightening, the first-quarter reading is the closest the index has been to zero since 2022, NAHB economist Paul Emrath wrote on the trade group’s Eye on Housing blog. The latest reading follows more than three years of sustained stress in acquisition, development and construction lending.

“This is the closest the index has come to zero in the last four years,” Emrath wrote.

Fed survey shows parallel trend

The Federal Reserve’s Senior Loan Officer Opinion Survey, which tracks lender-reported credit shifts, showed a similar pattern. Its net easing index for AD&C loans posted a reading of -4.9 in the first quarter, also negative but “fairly close to zero,” NAHB said.

The Fed considers readings between -5.0 and +5.0 to indicate that lending standards are “essentially unchanged.” Even so, the first-quarter data marked the 17th consecutive quarter that both the NAHB borrower survey and the Fed lender survey have been in negative territory.

For homebuilders and developers, the alignment between the two series underscores that tighter credit is not anecdotal or lender-specific. It has been a broad, cyclical constraint on project pipelines since 2022, even as underlying demand for new homes has remained solid.

Rates mixed, points move up on most AD&C loans

Contract interest rates on AD&C loans were mixed in the quarter, but shifts in upfront points changed the effective cost of money for different project types, NAHB said.

• The average contract rate on loans for pre-sold single-family construction inched up to 7.19% from 7.16%.
• Land acquisition loan rates fell to 7.42% from 7.51%.
• Land development loan rates declined to 7.27% from 7.44%.
• Speculative single-family construction loan rates eased to 7.31% from 7.47%.

At the same time, lenders adjusted initial points across the major AD&C categories:

• Average points on land acquisition loans decreased to 0.50% from 0.70%.
• Average points on land development loans increased to 0.50% from 0.44%.
• Points on speculative single-family construction loans jumped to 0.62% from 0.34%.
• Points on pre-sold single-family construction loans rose to 0.55% from 0.37%.

Because AD&C loans typically turn over quickly, even small changes in points can materially alter a builder’s cost of capital on a per-project basis. That makes the cost structure especially sensitive to lender risk appetite and balance sheet pressures.

Effective costs fall for land, rise for vertical construction

When both rates and points are considered, the average effective interest rate fell for land-focused loans but increased for single-family vertical construction, according to NAHB.

• Land acquisition: Effective rate decreased to 9.36% from 9.81%.
• Land development: Effective rate dipped to 10.15% from 10.28%.
• Speculative single-family construction: Effective rate climbed to 11.22% from 10.64%.
• Pre-sold single-family construction: Effective rate rose to 11.68% from 11.01%.

NAHB noted that despite the mixed quarter-to-quarter movements, effective rates for each of the four AD&C loan types have come down materially from their peaks between the third quarter of 2023 and the second quarter of 2024.

For builders, the shift means the front end of the pipeline — land acquisition and early development — is seeing incremental cost relief, while the back end — vertical single-family construction — remains expensive, especially for speculative starts. That cost squeeze can reinforce a bias toward pre-sold product and limit risk-taking on inventory homes.

Construction-to-perm loans support sales

The survey also highlighted the role of construction-to-permanent loans in getting projects done. Among builders who put up single-family homes in the first quarter, 35% reported using a one-time-close construction-to-perm loan made to the final homebuyer for at least some of their production.

On average, 51% of the homes built by those respondents were financed with a construction-to-perm structure. That share underscores how closely project financing is tied to retail demand and mortgage-market dynamics: builders are relying on buyers’ ability to lock in financing to de-risk construction and satisfy lender requirements.

Why it matters for builders

The first-quarter results suggest that while credit conditions are still a headwind, the worst of the tightening cycle may be passing if both NAHB and Fed indices are gravitating toward “essentially unchanged” territory.

For production and private builders, the data points to several operational implications:

• Pipeline planning: Slightly easier land financing but higher effective costs for vertical construction argue for careful staging of lot development and starts, especially for spec inventory.
• Capital structure: Increased points on construction loans make equity and non-bank capital comparatively more attractive for some segments, particularly infill and smaller projects.
• Sales strategy: The growing use of construction-to-perm loans reinforces the value of lender partnerships and programs that can convert qualified demand into reliable takeout financing.

More detail on credit conditions for residential builders and developers is available on NAHB’s AD&C Financing Survey web page.