New Rules For The New-construction Market

Like much of the real estate market, the new-construction sector is starting to turn a corner. Builder confidence, buyer interest and construction lending are all on the rise. However, after being beaten down financially during the downturn, builders today are more inclined to pass along the onus of obtaining financing to buyers as opposed to providing it themselves.

Positive trends all around

Mike Kinane, senior vice president for retail lending products with TD Bank in Cherry Hill, N.J., says that the bank is seeing about a 20 percent increase in construction lending in 2012 compared to last year. He attributes the increase to rising confidence on the part of buyers who feel better equipped, in part thanks to record-low mortgage rates, to handle the added costs of new construction.

But it's not just buyers who are feeling more confident -- home builders are the most confident they've been in years. According to the National Association of Home Builders/Wells Fargo Housing Market Index, builder confidence is at its strongest level since near the peak of the market in June 2006.

Furthermore, with housing starts and building permits at their highest points since July 2008, construction activity is definitely on the rise.

But despite the positive trends in recent months, builders remain guarded against potential losses and have thus changed the way they fund new projects.

Brave new market

Construction was the one of, if not the hardest-hit industry following the downturn. Before the recession, many big builders had their own finance companies that made loans readily available to prospective buyers. But builder finance companies were depleted during the downturn leaving financing options through builders far less available.

Perhaps that's the biggest change to the new-construction market today verses yesteryear: more buyers are the ones responsible for securing financing, not the builder. And with such strict lending conditions, securing a construction loan today is no easy task.