United States, September 26, 2025
News Summary
Federal data show outstanding acquisition, development and construction (AD&C) loan balances fell to $469.1 billion, marking a sixth consecutive quarterly decline and a 5.3% drop year-over-year. The fall was led by reductions in other real estate development, while 1–4 family construction and land development balances stood at $89.8 billion, about 56% below the long-run peak. Reported delinquencies eased to roughly $1.1 billion (about 1.2% of the 1–4 family construction stock). With banks pulling back, builders are increasingly turning to private lenders, equity partners and institutional capital amid tighter underwriting and higher upfront requirements.
Construction Lending Falls to $469.1 Billion in Q2 2025 as Builder Credit Tightens
Top lines
In the second quarter of 2025, the outstanding volume of acquisition, development and construction (AD&C) loans dropped to $469.1 billion, marking the sixth straight quarter of decline and a 5.3% decrease from the same quarter a year earlier. A survey of builders released the same quarter signaled tighter credit conditions, underlining that access to construction financing remains reduced compared with past years.
Where the declines are coming from
The fall in AD&C lending was led by reductions in other real estate development loans, which stood at $379.3 billion in Q2 2025, down 2.3% from the prior quarter. Loans for 1–4 family residential construction and land development totaled $89.8 billion, down 2.0% from one year earlier and down slightly on the quarter, from $90.0 billion to $89.8 billion.
Delinquencies and problem loans
As the stock of outstanding 1–4 family construction loans declined, so did problem loans. Total loans 30 days or more past due or in nonaccrual status fell to $1.1 billion in Q2 2025, down from $1.2 billion the previous quarter. As a share of total 1–4 family construction loan balances, past-due and nonaccrual loans represented about 1.2%. Loans in nonaccrual status were roughly $572.1 million, while loans 30–89 days past due were about $469.2 million.
Context and caveats
The reporting agency’s data measure the stock of outstanding loan balances at a point in time, not the flow of new originations or payoffs. That means the numbers show the current pool of loans but do not directly reveal new lending activity or the pace of originations. Overall lending remains far below earlier cycles: existing 1–4 family residential AD&C loan balances are about 56% lower than the peak of $204 billion recorded in Q1 2008.
How builders are responding
The builder survey found that lenders are tightening terms for many projects. In response, builders and developers have increasingly turned to alternative sources of capital, including equity partners and private institutional lenders that have raised funds specifically to back construction projects. These alternative channels are stepping in as traditional bank exposure to construction has shrunk because of regulatory and risk-appetite changes at many banks.
Practical effects for projects
In a tighter lending market, common features of construction financing remain important: lenders typically underwrite based on cost, scope and timeline; require contractor agreements and plans; and release funds on a draw schedule tied to construction milestones. Many construction loans start with interest-only payments and convert to long-term financing once the project is finished. Builders should expect more paperwork, tighter underwriting standards, and higher up-front requirements than for typical purchase mortgages.
Outlook
The near-term outlook depends on how quickly demand for new housing and commercial space rebounds and how willing banks and private lenders are to extend construction credit. With outstanding balances continuing to slide and surveys showing credit tightening, builders may need to rely on mixed financing strategies and stronger pre-development equity to keep projects moving.
Frequently Asked Questions
Q: How much did AD&C lending fall in Q2 2025?
A: Outstanding AD&C loan balances fell to $469.1 billion in Q2 2025, down 5.3% from one year earlier.
Q: Which segment led the decline?
A: Declines were led by other real estate development loans, which fell to $379.3 billion and were down 2.3% from the prior quarter.
Q: What happened to 1–4 family construction loans?
A: Balances for 1–4 family residential construction and land development were $89.8 billion in Q2 2025, down 2.0% from a year earlier and down slightly from Q1 2025.
Q: Are delinquencies rising?
A: No — delinquencies and nonaccruals for 1–4 family construction loans fell to $1.1 billion in Q2 2025, with nonaccruals at about $572.1 million.
Q: Do these numbers show loan originations?
A: The figures represent the outstanding stock of loans at a point in time, not the flow of new originations or payoffs, so they are not a direct measure of lending activity over the period.
Q: What can builders do now?
A: Builders should strengthen project budgets and schedules, secure clear contractor agreements and plans, consider equity partners, shop multiple lenders, and be prepared for stricter underwriting and higher up-front requirements.
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Key figures at a glance
| Measure | Q2 2025 | Change |
|---|---|---|
| Outstanding AD&C loans | $469.1 billion | -5.3% year-over-year |
| Other real estate development loans | $379.3 billion | -2.3% quarter-over-quarter |
| 1–4 family construction & land development | $89.8 billion | -2.0% year-over-year; -0.3% quarter-over-quarter |
| Past-due & nonaccrual (1–4 family) | $1.1 billion | Down from $1.2 billion prior quarter |
| Nonaccrual (1–4 family) | $572.1 million | — |
| Share of past-due/nonaccrual | 1.2% | — |
| Comparison to peak (Q1 2008) | 56% lower | Peak was $204 billion |
| Lending trend | Sixth consecutive quarterly decline; builder survey shows tighter credit conditions | |
Deeper Dive: News & Info About This Topic
Additional Resources
- Bankrate — Best Construction Loan Lenders
- Wikipedia: Construction loan
- BusinessWire — Dwight Secures Capital to Originate $1 Billion in Multifamily Construction Loans
- Google Search: Dwight secures capital originate $1B multifamily construction loans
- Investopedia — The Best Construction Loan Lenders
- Google Scholar: construction loan lenders institutional construction finance
- Forbes Advisor — Best Construction Loan Lenders
- Encyclopedia Britannica: construction loan
- CoStar — US Hotel Construction Lending Remains Tight Despite Interest Rate Drops
- Google News: construction lending Q2 2025
Author: Construction TX News
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