USA - ALABAMA Trends and Developments Contributed by: Adam J. Sigman, Crystal H. Walls, Nathan Stotser and Katie Sinclair, Dentons
Introduction Although USA’s real gross domestic product (GDP) increased at an annual rate of 2.5% last year, real estate sectors in 2023 “stutter- stepped” due to several different factors strain - ing development and transactions. Stubborn inflation caused rate hikes and a delay in rate decreases, making debt more expensive. As debt rose in cost, equity followed suit, includ - ing completion requirements, returns, and more stringent market selections. Higher rates also slowed permanent refinancing of construction debt, causing more construction debt on lender books and less appetite for new construction loans. Further, while construction materials costs decreased, labor costs generally did not, and construction costs ultimately remained relatively high in 2023. Joint venture equity agreements continued to be common, with developer com - pletion guaranties becoming more strenuous as many deals and projects were delayed through - out the year. Nationally, the office sector faced loan maturities with lower occupancy, which caused lower values. In comparison, multifamily endured as certain markets remained vibrant and active, even with a decline in new project starts. This imminent decrease in supply has caused many market participants to expect a spike in rents, which would result in a wave of new investments and construction. Retail and industrial assets con - tinued trying to evolve in line with the new nor - mal, which includes more online shopping and a greater desire for physical retail to incorporate experiential activities with traditional shopping. This chapter will summarize how this past year’s general real estate trends will shape the market in Alabama for the future.
The Housing Market The housing market began to slow after a period of rapid growth since 2020, due largely to a com - petitive environment created by high mortgage rates and incredibly low availability for interested buyers. Recent homebuyers who bought when mortgage rates were much lower were able to afford more expensive houses. Now, these homebuyers have no reason to sell when simi- larly priced houses are less affordable due to higher mortgage rates. Other contributing fac - tors included home prices undergoing significant increases, as homes on the market continued to sell above listing price. The inventory of housing at the end of the year was also at an all-time low, and the median sale price peaked in June 2023 at USD425,000, causing market averages that proved to be too competitive for the majority of consumers. In the fastest-growing city in Alabama, Hunts - ville’s major establishments (such as Google, NASA, Boeing, Toyota, and even the federal government) are continuing to recruit educated workers, particularly from the 24- to 34-year-old demographic, into the local real estate market. This demographic has held home ownership rates steady, especially those with household incomes of greater than USD100,000. There were multiple lawsuits against the Nation - al Association of Realtors in 2023 focused on the commissions paid by homeowner sellers in residential transactions, with these commissions generally being divided among brokers for both buyer and seller in such transactions. In early 2024, a settlement resulting in the elimination of these commissions occurred, with over USD400 million in damages being paid to groups of home - owner sellers. At this point, it is unclear how the legislation and trend against anti-competition of
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