The cost of borrowing to acquire land, develop lots and build homes climbed across nearly every category tracked by the National Association of Home Builders in the second quarter of 2026, erasing the relief builders had seen at the end of 2025 and adding a new layer of pressure to already-squeezed development margins.
According to NAHB’s Eye on Housing blog, which published the findings August 13, the average effective interest rate on all four categories of Acquisition, Development & Construction (AD&C) loans tracked by NAHB’s quarterly survey was more than 0.6 percentage points higher in the second quarter than it had been at the close of 2025. The data come from NAHB economist Paul Emrath’s analysis of the association’s quarterly AD&C Financing Survey.
Rates rise even as some contract terms hold steady
The increase wasn’t uniform across loan types, and the details matter for how builders read it. The average contract rate rose on two of the four AD&C categories: from 7.42% to 7.77% on loans for land acquisition, and from 7.27% to 8.09% on loans for land development. Contract rates actually eased slightly on the other two β from 7.31% to 7.28% on loans for speculative single-family construction and from 7.19% to 7.01% on loans for pre-sold single-family construction.
What pushed overall borrowing costs higher was points, not headline rates. Average initial points charged by lenders increased on all four loan categories: from 0.50% to 1.05% on both land acquisition and land development loans, from 0.62% to 0.85% on speculative single-family construction loans, and from 0.55% to 0.71% on pre-sold single-family construction loans. Because AD&C loans are typically paid off quickly, points can be a stronger driver of total borrowing cost than the contract rate itself.
Combining rate and points into an effective interest rate, the increases were substantial for three of the four categories: from 9.36% to 10.43% on land acquisition loans, from 10.15% to 12.59% on land development loans, and from 11.22% to 11.82% on speculative single-family construction loans. The effective rate on pre-sold single-family construction loans was essentially flat, edging from 11.68% to 11.67%.
Builders and lenders now disagree about the direction of credit
NAHB’s survey-based net easing index β which measures whether builders and developers are experiencing looser or tighter credit conditions β posted a second-quarter reading of -12.0, indicating continued net tightening. NAHB said this marks the eighteenth consecutive quarter that residential builders and developers have reported tightening AD&C credit conditions.
Notably, a comparable index built from the Federal Reserve’s survey of bank lenders moved in the opposite direction, posting a second-quarter reading of +3.7. NAHB said this is the first time since it began comparing the two series in 2013 that lenders have reported easing credit conditions at the same time builders and developers report tightening β a divergence that suggests banks and the builders actually seeking loans are experiencing the market differently.
Among the builders and developers who said credit tightened in the second quarter, 53% reported lenders requiring personal guarantees or collateral unrelated to the specific project, putting a builder’s broader business β not just the individual deal β at risk. Tied for the next most common tightening tactic, each cited by 47% of respondents, were outright interest-rate increases, lower loan-to-value or loan-to-cost ratios, and lenders refusing to extend relationship loans.
What it means
NAHB frames the numbers as evidence that credit access, not just mortgage rates, is constraining new-home supply. The association’s post ties the AD&C findings to elevated mortgage rates’ effect on affordability, noting that access to construction and development credit “at a reasonable cost plays an important role in enabling builders and developers to expand the supply of affordable housing.” That is NAHB’s interpretation and advocacy framing β the trade group has consistently used AD&C data to argue for policy relief β rather than a neutral market conclusion.
What the data themselves show is narrower but still significant: builders financing land acquisition and land development, the earliest and most speculative stages of a project, are absorbing the biggest cost increases, while those with construction loans tied to a pre-sold or already-selling project are largely insulated. That split could reinforce a pattern already visible elsewhere in the industry, where builders have leaned toward buy-now, build-later land strategies and options rather than carrying raw land and development risk on their own balance sheets β a shift discussed in NAHB’s recent survey on rising builder M&A activity.
Higher land and development financing costs also arrive at a moment when overall borrowing conditions for housing remain elevated: mortgage rates hit 6.81% earlier this year, the highest level in roughly twelve months, weighing on buyer demand even as builders face their own rising input costs. The divergence between NAHB’s builder-reported tightening and the Fed’s lender-reported easing also stands in contrast to trends elsewhere in commercial lending, where banks eased commercial real estate loan standards in the second quarter according to the Fed’s own survey β underscoring that residential AD&C credit may be tightening for reasons specific to homebuilding risk rather than a broad bank pullback.
What to watch
NAHB’s next AD&C Financing Survey, covering the third quarter of 2026, will show whether the divergence between builder-reported and lender-reported credit conditions persists or narrows. Also worth tracking: whether points continue rising even if contract rates stabilize, since that trend is what drove effective borrowing costs higher this quarter, and whether the personal-guarantee and collateral requirements cited by more than half of builders spread further across the industry, a shift that could squeeze smaller and private builders β who NAHB says account for the majority of single-family construction β more than large public builders with stronger balance sheets.
