Interest rates on construction loans rose in 2018

Wood framing home construction

Interest rates on loans for residential acquisition, development, and construction (AD&C) generally increased throughout 2018, according to results from NAHB’s fourth quarter AD&C survey.  For the fourth quarter, builders and developers responding to the survey reported a median interest rate that varied from 5.75% on loans for pre-sold single-family construction, to 5.88% on loans for land development, to 6.00% on loans for both land acquisition and speculative single-family construction.

Compared to the third quarter, the median rate was slightly lower on development loans, 25 basis points higher on pre-sold construction loans, and unchanged on loans for acquisition and spec construction.  Earlier in the year, however, interest rates had been consistently drifting upward.  As result, the median interest rate on the various types of AD&C loans was 37 to 75 basis points higher in the fourth quarter of 2018 compared to the first quarter (when the AD&C survey began collecting data on loan terms).

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Also in the fourth quarter of 2018, lenders charged a median of 1.00 points on the loans for acquisition, development, and speculative construction; 0.63 points on the loans for pre-sold construction—all up from the third quarter.

See more at NAHB’s Eye on Housing blog.

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