Realty Check

Home Builders Hit By Credit Crunch "Hammer" Too

Credit Crunch

While some of you may wonder why a home builder would even want to hammer a nail these days, they do still need to stay in business, and their business is to build.

That said, there is new concern from builders today that the credit crunch on Wall Street is hitting small builders where they live, or at least where they want you to live.

As builders explained to a Senate committee yesterday, when they take on a project, they often take out loans to purchase land, develop lots, and build infrastructure like streets, sidewalks, lighting and sewers--not to mention building the actual homes. Those loans are now harder to come by and definitely more expensive.

Bob Mitchell, a home builder in the DC area, told the panel: “The current financing quagmire for home builders vividly illustrates the importance of developing additional sources of AD&C credit. Furthermore, there is no secondary market for residential AD&C loans where community banks and thrifts could turn to help manage their balance sheets and obtain liquidity for additional lending."

I see where the builders are coming from. They clearly need cash, and having a secondary market would transfer risk from the lenders, but I wonder how truly practical this is now, when risk aversion is running so high.

Until the home building industry hits bottom or at least stops skidding along the bottom, I doubt anyone wants to buy into the risk of a loan from a local builder. Sad but true.

Questions?  Comments?