Construction Trend Tuesday (#14)
Lending standards keep tightening
Construction Trend Tuesday covers one (hopefully) interesting industry trend in a quick, two minute read. You can access the archive of CTT posts here.
Every quarter the Fed asks a bunch of banks about their lending standards. No surprise: banks have continuously tightened their standards for construction loans (i.e., made it harder for borrowers to qualify) over the past five years.
Note that this graph shows the percentage of banks that tightened lending standards minus the share that loosened them in any given quarter, which is not the same thing as showing how tight lending standards are. Any time the green line is above 0%, lending standards are getting tighter.
For instance, 17% of banks tightened lending standards for commercial construction loans in April 2025, while 6% loosened them. That pens out to a net 11% of banks tightening lending standards, and those lending standards were tight to begin with.
A few takeaways:
Banks have on net loosened standards for commercial construction loans in just three quarters over the past ten years (Q3 2021 to Q1 2022), and that was when interest rates were plummeting.
The net share of banks tightening lending standards actually increased in April 2025 (though just a little). That was the first net increase since mid-2023.
Third, the Fed cut rates by 100 basis points in 2024, so it’s a little surprising that banks were still tightening lending standards.
But here’s the biggest takeaway from this data: large banks (with greater than $100 billion in assets) have been less stringent about approving construction loans over the past few quarters. Of the 19 large banks surveyed in April, for instance, 17 kept their lending standards unchanged, while two eased them. That same month, 11 out of 44 small banks tightened their lending standards, while just two eased them.
This divergence between big banks and small banks is almost certainly related to the fact that the sector has been consolidating—fewer banks each with more market share—in recent years.
What’s Next
We get some pretty important data on retail sales this week. We’ll cover that and a whole lot more in Week in Review, our every-Friday post that covers all the economic news and data in a breezy, five minute read.
Week in Review is only for paying subscribers. If that’s not you and you want it to be, just click the subscribe button.