Financing remains key obstacle for home builders, according to survey

This article first appeared in the PB January 2012 issue of Pro Builder.

Project and buyer financing issues continue to plague the home-building industry, in many cases preventing home sales from closing and forcing builders and developers to pass on lucrative deals, according to a December 2011 survey of more than 200 builders and designers by Professional Builder.

A whopping 71.6 percent of survey respondents said their company lost one or more sales during the past 12 months because a prospective buyer was not able to secure a loan, while slightly more than half (55.5 percent) said they had to pass on a potentially lucrative project because they could not secure project financing.

The discouraging fact is most builders believe there is demand for new homes in their markets, but financing obstacles stand in the way. When asked if they would be building and selling more homes today if financing was more readily available, more than 83 percent of respondents either “strongly” or “somewhat” agreed, while just 7.5 percent disagreed with the notion. Moreover, nearly two-thirds of survey respondents (62.3 percent) said their bank was unwilling to fund one or more of their new projects during the past 12 months.

Other top bank-related issues cited by builders include: lines of credit stopped with no warning (31.4 percent), bank unwilling to take a modest write down to lower the land base (23.7 percent), and loans called even though payments were current (16.4 percent).
While builder and buyer financing issues are rampant, neither headed the list of the top financial challenges for 2011; competing against foreclosures/short sales took that honor.

Methodology and Respondent Information

This survey was distributed in November 2011 to 86,054 Professional Builder readers. No incentive was offered. By the closing date, a total of 212 eligible readers had responded. Respondent breakdown by discipline: 56.7 percent single-family home builder; 20.9 percent diversified builder/remodeler; 5.6 percent multi-family builder; 4.7 percent designer/architect; 1.4 percent systems builder; and 10.7 percent “other.”