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Credit Conditions for Builders Continue to Be Tight – Eye On Housing

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Credit conditions on loans for residential Land Acquisition, Development & Construction (AD&C) were still tightening in the third quarter of 2025, according to NAHB’s quarterly survey on AD&C Financing.  The net easing index derived from the survey posted a reading of -11.0 (the negative number indicating that credit tightened since the previous quarter). This is in reasonably close agreement with the third quarter reading of -6.6 for the similar net easing index produced from the Federal Reserve’s survey of senior loan officers—marking fifteen consecutive quarters of tightening credit conditions reported by both builders and lenders.

More details from the Fed’s survey of lenders—including measures of demand and net easing for residential mortgages—appeared in a previous post.

According to the NAHB survey, the most common way lenders tightened in the third quarter was by lowering the maximum allowable loan-to-value or loan-to-cost ratio on the loans (cited by 60% of the builders and developers who reported tighter credit). Tied for second place were reducing the amount they are willing to lend, requiring out-of-pocket payment of interest or borrower funding of an interest reserve, and  requiring personal guarantees (cited by 47% each).

Results on the cost of credit in the third quarter were mixed. The average contract rate increased from 7.82% to 7.95% on loans specifically for residential land acquisition—but declined on the other three categories of loans tracked in NAHB’s AD&C survey: from 8.04% to 7.68% on loans for land development, from 8.17% to 7.90% on loans for speculative single-family construction, and from 7.95% to 7.90% on loans for pre-sold single-family construction.   

Meanwhile, the average initial points charged on the loans increased across the board: from 0.56% to 0.66% on loans for land acquisition, from 0.74% to 0.83% on loans for land development, from 0.72% to 0.74% on loans for speculative single-family construction, and from 0.58% to 0.67% on loans for pre-sold single-family construction.

Those combinations of quarter-to-quarter changes caused the effective interest rate (which takes both the contract rate and initial points into account) to increase from 9.95% to 10.15% on loans for land acquisition, but to decline from 11.77% to 10.92% on loans for land development and from 12.82% to 12.04% on loans for speculative single-family construction. The average effective rate on loans for pre-sold single-family construction remained essentially unchanged at 12.74%, compared to 12.73% in the second quarter.

Although results on the average effective interest rate were mixed on a quarter-to-quarter basis, the  rate on each of the four types of AD&C loans has declined significantly since peaking somewhere in the period between 2023 Q3 and 2024 Q2.

Also in the NAHB AD&C survey, 37% of respondents who built single-family homes during the third quarter of 2025 reported financing some of the construction with a construction-to-permanent (one-time-close) loan made to the ultimate home buyer. On average, 63% of the homes these respondents built were financed this way.

More detail on credit conditions for residential builders and developers is available on NAHB’s AD&C Financing Survey web page.



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Credit Card and Auto Loan Balances Continue to Slow   – Eye On Housing

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Overall consumer credit continued to rise for the third quarter of 2025, but the pace of growth remains slow. Student loan balances continue to rise as well, slowly returning to pre-COVID growth. Furthermore, credit card and auto loan balances continue to grow but at historically low rates. Although interest rates are still elevated, credit card and auto loan rates continue to decrease slightly. 

Total outstanding U.S. consumer credit reached $5.08 trillion for the third quarter of 2025, according to the Federal Reserve’s G.19 Consumer Credit Report. This is an increase of 2.72% at a seasonally adjusted annual rate (SAAR) compared to the previous quarter, and a 2.25% increase compared to last year.  

Nonrevolving Credit  

Nonrevolving credit, largely driven by student and auto loans (the G.19 report excludes mortgage loans), reached $3.77 trillion (SA) in the third quarter of 2025. This marks a 2.95% increase (SAAR) from the previous quarter, and a 2.14% increase from last year. 

Student loan debt stood at $1.84 trillion (NSA) for the third quarter of 2025, marking a 3.84% increase from a year ago. The end of the COVID-19 Emergency Relief—which allowed 0% interest and halted payments until September 1, 2023—led year-over-year growth to decline for four consecutive quarters, from Q3 2023 through Q2 2024 as borrowers resumed payments and took on less new debt. The past five quarters have shown a return to growth, nearly matching pre-pandemic growth rates.  

Auto loans reached a level of $1.57 trillion (NSA), showing a year-over-year increase of only 0.30%, marking one of the slowest growth rates since 2010. The deceleration in growth can be attributed to several factors, including stricter lending standards, elevated interest rates, and overall inflation. Auto loan rates for a 60-month new car stood at 7.64% (NSA) for the third quarter of 2025, a historically elevated level. However, auto rates have slowed modestly, decreasing by 0.76 percentage points compared to a year ago.  

Revolving Credit 

Revolving credit, primarily made up of credit card debt, rose to $1.31 trillion (SA) in the third quarter of 2025. This represents a 2.04% increase (SAAR) from the previous quarter and a 2.55% increase year-over-year. Both measures reflect a notable slowdown, marking some of the weakest growth in revolving credit in several years. This deceleration comes as credit card interest rates remain elevated, with the average rate held by commercial banks (NSA) at 21.39%. Although rates have hovered near historic highs since Q4 2022, the past three quarters have shown modest year-over-year declines, reflecting the impact of rate cuts that began in 2024. 



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Foundation Types in 2024: Slabs Continue to Rise, Crawl Spaces Decline

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In 2024, 73% of new single-family homes started were built on slab foundations, according to NAHB analysis of the U.S. Census Bureau’s Survey of Construction (SOC). Although this was a modest year-over-year increase of 0.6 percentage points, it continues the upward trend in slab adoption, widening the gap between slabs and other foundation types. In comparison, basements (full or partial) accounted for 17% of new homes, while crawl spaces made up just 9.2%.

Foundation type continues to follow regional climate patterns. In colder northern divisions, where foundations to extend below the frost line, basements are more common. In 2024, the majority of homes in New England (67.2%), West North Central (62.3%), East North Central (50.3%), and the Middle Atlantic (48.8%) were built with full or partial basements. Among these, East North Central (1,119 sq. ft.) and the Middle Atlantic (1,113 sq. ft.) had the largest average finished basement areas, both exceeding the national average of 1,112 sq. ft. West North Central followed with 940 sq. ft., and New England averaged 810 sq. ft.

In contrast, warmer regions favor slab foundations for their affordability and efficiency. Nearly all new single-family homes in West South Central (97.9%), Pacific (89.9%), and South Atlantic (85.7%) divisions were built on slabs in 2024. The cost advantages of slabs have also led to increased adoption in some northern divisions – especially post-pandemic, as rising material costs and supply chain disruptions pushed builders to prioritize cost-effective construction methods.

Crawl space foundations have seen a long-term decline. While East South Central and Pacific divisions have historically led in crawl space usage, both have experienced noticeable decreases, particularly the Pacific, which saw a sharp drop in the past decade. Interestingly, the Mountain division has seen a gradual rebound in crawl space use, now ranking second in crawl space share. Meanwhile, divisions such as East North Central, New England, and West South Central have consistently maintained shares of new homes started below 10%, reflecting persistent regional preferences. Notably, the West North Central division surpassed the 10% threshold in 2024 after several years of incremental growth, although it remains unclear whether this marks a lasting shift or a one-time fluctuation.

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Prices for New Homes Continue to Drop as Existing Rises

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The median price for a new single-family home sold in the first quarter of 2025 was $416,900, a mere $14,600 above the existing home sale price of $402,300, according to U.S. Census Bureau and National Association of Realtors data (not seasonally adjusted – NSA).

Typically, new homes carry a price premium over existing homes. However, the median existing home price exceeded the new home price in the second quarter of 2024 and again in the third quarter of 2024. The first quarter of 2025’s $14,600 price difference is considerably modest by historical standards. Just over two years ago in Q4 2022, the price gap hit a peak with new homes selling for $64,200 more than existing homes. The average difference over the last five years was $26,700, while the decade (2010-2019) prior saw a much wider gap of $66,000.

Both new and existing homes saw dramatic increases in prices post-pandemic due to higher construction costs and limited supply. While overall home prices remain elevated compared to historical norms, new home prices have moderated due to builder business decisions, but existing home prices continue to increase because of lean supply.

The median price for a new single-family home sold in the first quarter of 2025 decreased 2.32% from the previous year. New home prices have continued to experience year-over-year declines for eight consecutive quarters.

Meanwhile, the median price for existing single-family homes increased 3.38% from one year ago. Existing home prices have continued to experience year-over-year increases for seven consecutive quarters.

There are several factors as to why new and existing homes are selling at similar price points. Tight inventory continues to push up prices for existing homes, as many homeowners who secured low mortgage rates during the pandemic are hesitant to sell due to current high interest rates.

Meanwhile, new home pricing is more volatile – prices change due to the types and locations of homes being built. Despite various challenges facing the industry, home builders are adapting to affordability challenges by building on smaller lots, constructing smaller homes, and offering incentives. Additionally, there has been a shift in home building toward the South, associated with less expensive homes because of policy effects.

The least expensive region for homes in the first quarter was the Midwest, with a median price of $367,500 for new homes and $297,800 for existing homes. The South followed closely, with a median new home price of $376,000 and an existing home price of $361,800.

New homes were most expensive in the Northeast with a median price of $784,900, while the West sold at $522,100. However, for existing homes, the West led as the most expensive region at $626,000, followed by the Northeast at $482,700.

The new home price premium was most pronounced in the Northeast, where new homes sold for $302,200 more than existing homes. In contrast, the South saw little difference with a modest $14,200— similar to the national trend. Uniquely, this pattern reversed in the West, where existing homes were $103,900 more than new homes.

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Building Material Prices Continue to Grow at Slower Pace

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Prices for inputs to new residential construction—excluding capital investment, labor, and imports—were up 0.6% in March according to the most recent Producer Price Index (PPI) report published by the U.S. Bureau of Labor Statistics. The increase in February was revised upward to 0.7%. The Producer Price Index measures prices that domestic producers receive for their goods and services; this differs from the Consumer Price Index which measures what consumers pay and includes both domestic products as well as imports.

The inputs to the New Residential Construction Price Index grew 1.3% from March of last year. The index can be broken into two components—the goods component also increased 1.3% over the year, with services increasing 1.3% as well. For comparison, the total final demand index, which measures all goods and services across the economy, increased 2.7% over the year, with final demand with respect to goods up 0.9% and final demand for services up 3.6% over the year.

Input Goods

The goods component has a larger importance to the total residential construction inputs price index, representing around 60%. For the month, the price of input goods to new residential construction was up 0.5% in March.

The input goods to residential construction index can be further broken down into two separate components, one measuring energy inputs with the other measuring goods less energy inputs. The latter of these two components simply represents building materials used in residential construction, which makes up around 93% of the goods index.

Energy input prices fell 3.9% between February and March and were 14.9% lower than one year ago. Building material prices were up 0.8% between February and March and up 2.7% compared to one year ago. Energy costs have continued to fall on a year-over-year basis, as this marks the eighth consecutive month of lower input energy costs.

Metal products used in residential construction saw the largest price increases in the month of March. Across all inputs to new residential construction, ornamental and architectural metal work increased the most, up 21.0%. Ornamental and architectural metal work products increased 11.2% on a month-to-month basis, by far their largest monthly increase for the product, with the next closes being 7.9% back in October of 2021.

Input Services

While prices of inputs to residential construction for services were down 0.1% over the year, they were up 1.1% in March from February. The price index for service inputs to residential construction can be broken out into three separate components: a trade services component, a transportation and warehousing services component, and a services excluding trade, transportation and warehousing component (other services). The most significant component is trade services (around 60%), followed by other services (around 29%), and finally transportation and warehousing services (around 11%). The largest component, trade services, was up 0.7% from a year ago. The other services component was up 1.6% over the year. Lastly, prices for transportation and warehousing services advanced 3.6% compared to March last year.

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Softwood Lumber Prices Continue to Lead Price Growth for Building Materials

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Prices for inputs to new residential construction—excluding capital investment, labor, and imports—were up 0.5% in February according to the most recent Producer Price Index (PPI) report published by the U.S. Bureau of Labor Statistics. The increase in January was revised downward to 1.1%. The Producer Price Index measures prices that domestic producers receive for their goods and services, this differs from the Consumer Price Index which measures what consumers pay and includes both domestic products as well as imports.

The inputs to the New Residential Construction Price Index grew 0.7% from February of last year. The index can be broken into two components—the goods component increased 1.2% over the year, while services decreased 0.1%. For comparison, the total final demand index, which measures all goods and services across the economy, increased 3.2% over the year, with final demand with respect to goods up 1.7% and final demand for services up 3.9% over the year.

Input Goods

The goods component has a larger importance to the total residential construction inputs price index, representing around 60%. For the month, the price of input goods to new residential construction was up 0.6% in February.

The input goods to residential construction index can be further broken down into two separate components, one measuring energy inputs with the other measuring goods less energy inputs. The latter of these two components simply represents building materials used in residential construction, which makes up around 93% of the goods index.

Energy input prices grew 2.6% between January and February but remained 8.5% lower compared to one year ago. Building material prices were up 0.5% between January and February while they were up 2.0% compared to one year ago.

Among materials used in residential construction, lumber and wood products ranks 3rd in terms of importance for the Inputs to New Residential Construction Index. Nonmetallic mineral products and metal products rank 1st and 2nd, respectively. The top lumber and wood products include general millwork, prefabricated structural members, not-edge worked softwood lumber, softwood veneer/plywood and hardwood veneer/plywood. Prices for these wood commodities experienced little growth for most of 2024. Currently, softwood lumber prices were 11.7% higher compared to one year ago while on a monthly basis, prices rose 3.0%. This marks the fourth straight month where yearly price growth was above 10% for softwood lumber.

Input Services

While prices of inputs to residential construction for services were down 0.1% over the year, they were up 0.4% in February from January. The price index for service inputs to residential construction can be broken out into three separate components: a trade services component, a transportation and warehousing services component, and a services excluding trade, transportation and warehousing component. The most significant component is trade services (around 60%), followed by services less trade, transportation and warehousing (around 29%), and finally transportation and warehousing services (around 11%). The largest component, trade services, was down 1.5% from a year ago. The services less trade, transportation and warehousing component was up 1.6% over the year.  Lastly, prices for transportation and warehousing services advanced 2.2% compared to February last year.

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Home Prices Continue to Slow in October

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Home price growth continued to slow in October, growing at a rate of 3.60% year-over-year, according to the S&P CoreLogic Case-Shiller Home Price Index (seasonally adjusted – SA). This marks a decline from the 3.90% growth rate recorded in September and represents the seventh consecutive drop in the annual growth rate since reaching a peak of 6.54% in March 2024. As shown in the graph below, the index level has experienced monthly declines since July. 

By Metro Area

In addition to tracking national home price changes, the S&P CoreLogic Index (SA) also reports home price indexes across 20 metro areas. Compared to last year, all 20 metro areas reported a home price increase.  There were 11 metro areas that grew more than the national rate of 3.60%. The highest annual rate was New York at 7.31%, followed by Chicago at 6.27% and Las Vegas at 5.93%. The smallest home price growth over the year was seen by Tampa at 0.41%, followed by Denver at 0.47%, and Dallas at 0.91%. 

By Census Division

A similar index, the Federal Housing Finance Agency Home Price Index (SA) publishes not only national data but also data by census division. The national year-over-year rate was 4.43% for October. Meanwhile, the division with the highest year-over-year rate was 6.95% in the Middle Atlantic, while the lowest was 2.30% in the Pacific. A three-month trend in rates is shown for each division below. The FHFA Home Price Index releases their metro and state data on a quarterly basis, which NAHB analyzed in a previous post. 

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Mortgage Activity Declines in November as Rates Continue to Increase

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The Market Composite Index, a measure of mortgage loan application volume by the Mortgage Bankers Association’s (MBA) weekly survey, decreased 14.5%, month-over-month, in November on a seasonally adjusted (SA) basis. The slowdown in mortgage activity can be attributed to higher mortgage rates as the ten-year Treasury yield increased in November, reflecting uncertainties surrounding the elections.

The market decline was reflected primarily in the Refinance Index (SA), which decreased by 33.2% month-over-month. Meanwhile, the Purchase Index (SA) showed a modest increase of 2.7% over the same period. However, compared to October 2023, the Market Composite Index is up by 16.4%, with the Purchase Index seeing a slight 4.8% increase and the Refinance Index higher by 45.9%.

The average contract rate for 30-year fixed mortgage rate per the MBA survey for November averaged at 6.8%, 29 basis points (bps) higher month-over-month in response to a higher ten-year Treasury rate.

Loan size metrics also reflected market adjustments. The average loan size for the total market (including purchases and refinances) shrank 2.9% month-over-month on a non-seasonally adjusted (NSA) basis, decreasing from $389,800 to $378,400. Loan sizes for purchasing and refinancing decreased. Purchase loans averaged $436,200, down 2.7% from $448,300, while refinance loans saw a sharper 9.9% decrease, with the average loan size falling from $322,500 to $290,600. Adjustable-rate mortgages (ARMs) also declined 6.0%, from $1.15 million to $1.08 million.

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Housing Costs Continue to Drive Inflation

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Inflation picked up again in October, showing the last mile to the 2% target will be the hardest. Shelter costs remained the main driver of inflation, accounting for over 65% of the 12-month increase in the all items less food and energy index. However, the year-over-year change in the shelter index has been below 5% for the second consecutive month, signaling some moderation in housing inflation.

While the Fed’s interest rate cuts could help ease some pressure on the housing market, its ability to address rising housing costs is limited, as these increases are driven by a lack of affordable supply and increasing development costs. In fact, tight monetary policy hurts housing supply because it increases the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise at an elevated pace despite Fed policy tightening. Additional housing supply is the primary solution to tame housing inflation.

Furthermore, the 2024 election result has put inflation back in the spotlight and added some downside risks to the economic outlook. Proposed tax cuts and tariffs could increase inflationary pressures, suggesting a more gradual easing cycle with a slightly higher terminal federal funds rate. Given the housing market’s sensitivity to interest rates, this could extend affordability crisis and constrain housing supply as builders continue to grapple with lingering supply chain challenges.

The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose by 0.2% in October on a seasonally adjusted basis, the same increase seen over the previous three months. Excluding the volatile food and energy components, the “core” CPI increased by 0.3% in October, the same increase as in August and September.

The price index for a broad set of energy sources remained unchanged in October, with declines in gasoline (-0.9%) and fuel oil (-4.6%) offset by increases in electricity (+1.2%) and natural gas (+0.3%). Meanwhile, the food index rose 0.2%, after a 0.4% increase in September. The index for food away from home increased by 0.2% and the index for food at home rose by 0.1%.

The index for shelter (+0.4%) was the largest contributor to the monthly increase in all items index, accounting for over 50% of the total increase. Other top contributors that rose in October include indexes for used cars and trucks (+2.7%), airline fares (+3.2%), medical care (+0.3%) and recreation (+0.4%). Meanwhile, the top contributors that experienced a decline include indexes for apparel (-1.5%), communication (-0.6%) and household furnishings and operations (-0.1%).

The index for shelter makes up more than 40% of the “core” CPI. The index saw a 0.4% rise in October, following an increase of 0.2% in September. The indexes for owners’ equivalent rent (OER) and rent of primary residence (RPR) increased by 0.4% and 0.3% over the month. These gains have been the largest contributors to headline inflation in recent months. 

During the past twelve months, on a non-seasonally adjusted basis, the CPI rose by 2.6% in October, following a 2.4% increase in September. The “core” CPI increased by 3.3% over the past twelve months, the same increase as in September. The food index rose by 2.1%, while the energy index fell by 4.9%.

NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than overall inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components).

In October, the Real Rent Index remained unchanged for the second consecutive month. Over the first ten months of 2024, the monthly growth rate of the Real Rent Index averaged 0.1%, slower than the average of 0.2% in 2023.

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Patios Continue to Crowd Out Decks on New Homes

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While the share of new homes with patios continues to climb, the share with decks has hovered at a historic low of under 18%, according to NAHB tabulation of data from the HUD/Census Bureau Survey of Construction (SOC).

Every year from the re-design of the SOC in 2005 through 2018, over 22% of single-family homes started featured decks. After that, however, the share dropped significantly, reaching a low of 17.5% in 2021. Since then, the percentage has remained near that trough, at 17.7% in 2022 and 17.6% in 2023. Moreover, this has been occurring at the same time the share of new homes with patios was climbing to a record high 67.7%. In fact, the tendency of deck and patio percentages to move in opposite directions is evident throughout the 2005-2023 period. The correlation between the percentages over that span is -0.84, suggesting that patios on new homes have been functioning as a substitute for decks. When more new homes have patios, fewer have decks.

New homes with both a deck and patio do occur but are comparatively rare. Among single-family homes started in 2023, fewer than 6% featured both a deck and a patio.

Decks have been more common not only when but where patios are less common. For example, among single-family homes started in 2023, patios were least common (featured ion only 17% of the homes) in the New England Census Division, the same division where a high of 76% of the homes featured decks. At the other extreme, in the West South Central a divisional high 81% of new homes featured patios in 2023, and a divisional low of 3% featured decks. Across all nine divisions in 2023, the correlation between the percentages of new homes with decks and patios was -0.82.

Nevertheless, decks remain relatively popular on new homes in some parts of the country. Following the 76% in New England at a distance, 42% of new homes featured decks in 2023 in both the Middle Atlantic and West North Central divisions.

More detail on new home deck construction is available from the Annual Builder Practices Survey (BPS) conducted by Home Innovation Research Labs.

Nationally, the 2024 BPS report (based on homes built in 2023) shows that the average size of a deck on a new single-family home is 284 square feet. Across Census divisions, the average size ranges from a low of 230 square feet in New England to a high of 382 square feet in the adjacent Middle Atlantic.

On a square foot basis, the BPS shows an evolving geographic split in the material builders use most often in deck construction. In the West North Central, South Atlantic, East South Central and West South Central divisions, treated wood remains the top choice. In the New England, Middle Atlantic, East North Central and Mountain divisions, composite material has moved ahead of treated wood; while in the Pacific Division, concrete edged out composite for the top spot. The Pacific is also the only division where redwood (a species that can be used outdoors without special pressure treatment) is relatively common in new home deck construction.

A previous post covered the characteristics of patios on single-family homes built in 2023.

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