Housing Recovery is Hampered by Severe Dearth of Credit

Unless the housing sector improves the economic health will not return to sustainable levels. But housing recovery is seriously hampered by severe dearth of credit. Nearly two out of three builders of single family residential houses are complaining that lack of loans is putting at risk the fragile recovery that has just started to inch forward in the housing sector. This is according to a recent survey conducted by National Association of Home Builders (NAHB) taking into account acquisition, developing and construction (AD&C).

The chairperson of NAHB Joe Robson and a builder of residential houses from Okla said, “Across the country, home builders and developers are reporting a deterioration in credit availability and intensifying pressure on borrowers with outstanding loans. Lenders are cutting off loans for viable new housing projects and producing unnecessary foreclosures and losses on AD&C loans. With the pending expiration of the $8,000 first-time home buyer tax credit, these challenges threaten to halt any positive developments we have seen in the housing market in recent months.”

In the recent survey pertaining to AD&C credit conditions, 63% of the developers said that it is getting more difficult to get loans for constructing single-family houses during the second quarter of this year. They are complaining of falling credit market. According to them there are many reasons for this. 80% said that lenders are reducing the permitted ratio of loan-to-value. 76% alleged that the lenders are not advancing new loans. 75% noted that the lenders are decreasing the amount they are willing to advance as loan. 62% commented that the lenders were asking for personal guarantees or securities that have no link with the project.

Two out of three who were surveyed observed that under the circumstances they would have to stop building single-family houses until the situation improved.

The federal regulators supervising banking are contending that they are not telling the financial entities to refrain from making loans or to willy-nilly dissolve the outstanding ones. But the majority of the builders pointed the finger at the regulators for forcing the lenders to withhold advancing of loans.

NAHB contends that the regulators together with the lenders should make way for some understanding so that the builders can proceed with their work of constructing residential units. Borrowers with good ratings should not be denied loans. A more flexible attitude should be taken towards appraisals and modification of loans. Allowing for forbearance would go a long way in bringing relief. Robson concluded, “There can be no meaningful economic recovery until the flow of credit is restored to housing.”

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