Housing Risk Subsides, Banks Returning to Construction Lending

Banks are again seeing growth in demand for Construction and Development (C&D) loans and are starting to respond in kind with the continued strength of the housing sector.

The total amount of C&D loans on banks books at the end of the first quarter declined from $203.7 billion at the end of 2012 to $201.6 billion. However, 42% of the nation’s banks reported increases in C&D loans.  Aggregate construction and development (C&D) balances have fallen dramatically since peaking in 2007, as the industry grappled with bad loans during the depths of the financial crisis.

However, steady recovery in the home building sector (average market cap has increased about 140% since 2012), together with a more favorable real estate market, presents a more viable growth outlook for the banks in the coming quarters

Moreover, enhanced credit underwriting, collateral appraisal, and concentration risk limits should enable the banks to selectively grow C&D portfolios.

While the beneficiaries of the housing recovery are likely to remain uneven, potential growth opportunities are weighted toward the larger regional as certain of the smaller regional are forced to cut their traditional dependence on commercial real estate and develop more measured risk profiles, said Todd L. Hagerman, an analyst with Sterne Agee.

If you are considering new construction, whether commercial or residential, we can help.  Our extensive network of professionals in lending and construction are at your disposal to bring your project to fruition.  Give us a call and we’ll get the ball rolling!

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