Realty Check

Builders Fight Credit Crunch


While confidence among the nation's home builders appears to be edging up ever-so-cautiously, according to the National Association of Home Builders' monthly sentiment survey, one of the biggest headwinds to the builders now is credit.  I'm not talking about credit to potential home buyers, which while nothing like the wild west hey day of the housing boom, is easing a bit; I'm talking about credit to the builders.

"The banking regulators need to allow and encourage lenders to give leeway to residential AD&C borrowers who have loans in good standing by providing flexibility on re-appraisals, loan modifications and perhaps forbearance to give builders time to complete and sell their lots and homes," said NAHB Chairman Joe Robson in a recent press release.

Ironically, the show home for the NAHB's 2010 International Builders' Show in Las Vegas is in danger of missing completion due to credit issues.

The 2010 home is being built to the new National Green Building Standard and will be a near net-zero-energy home. It serves as a laboratory that will help shape the building practices used by thousands of those who seek to produce energy efficient homes. However, Domanico Custom Homes has not been able to find a bank that will finance the final draw needed to complete the home, even though it is 60 percent finished.

Now I've been to the IBS show more than once, and my favorite part is always going to shoot the show houses.  They're always full of reporters and get covered in the local  news as well as nationally, so it's not unlikely that they would sell pretty quickly to a qualified buyer.  It's hard to understand why a lender wouldn't want to put their cash behind an easy one like that!

But it's not just the famous houses, it's everywhere.  I was talking to a small local builder in Virginia over the weekend, who has really weathered the housing crash better than most.  But even as the Northern Virginia market surges back, he says credit is one of the biggest problems he's facing in getting new products to market for sale.  Northern Virginia was hit hard, not quite as bad as Las Vegas, but hard.  The lenders are obviously most skittish about the worst markets.

"Banks are just not lending because Las Vegas has been a tough market," says Adam Knecht, general manager at Domanico Custom Homes. "But this is a beautiful home in a great location and it is the state-of-the-art in green building. The New American Home is seen by thousands of people - millions if you include feature articles in newspapers and magazines. We're not going to have trouble selling this home."