Credit Crunch Threatens Future Development

The National Association of Home Builders has put out a series of press releases lately that speak to a growing spillover effect of the current credit crunch. 

In addition to the fact that the mortgage market has dried up somewhat due to the credit crunch - builders are now finding it hard to finance acquisition, development and construction loans (ADC Loans). 

Acquisition, Development and Construction loans are the primary financing method that large and small builders and developes use to buy and build out their subdivisions.  So now what they're seeing nationally is a bunch of the land contracts are falling apart due to a lack of financing. 

Granted, there are a lot of lots still in the pipeline as well as a pretty large inventory.  But the lead time on residential developments can be several months or even several years.  So not only does the credit crunch now have an impact on the housing market today, but it threatens to have an impact on the housing supply over the next several years.

And today the fed cut their short term interest rate down to 2%.  Most banks are expected to follow the fed's move and lower their prime rate to around 5%.