USA – ALABAMA Trends and Developments Contributed by: Adam J. Sigman, Crystal H. Walls, Nathan Stotser, Katie Sinclair and Courtney Bradshaw, Dentons
Introduction Although the USA’s real gross domestic product (GDP) increased at an annual rate of 2.8% last year, and Alabama’s economy remained stable, hesitation in real estate sectors continued in 2024 due to several different factors challeng - 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. As a result, many in the real estate indus - try found themselves in a waiting game for more favourable rates as the year progressed. The office sector continued to face high vacan - cy rates throughout the year, with those in the industry hoping that positive net absorption in the fourth quarter of 2024 was a sign of things to come, largely due to the steady upturn in return-to-office mandates by major companies. In comparison, multifamily endured, remaining desirable in certain markets even with a decline in new project starts, which was due in part to a record supply of completed projects hitting the market in 2024. Retail and industrial assets continued to evolve as well, facing challenges of the new normal, which includes increased online shopping and a greater desire from consumers for physical retail to incorporate experiential activities with traditional shopping. Further, while construction materials costs sta - bilised, labour costs generally did not, and con - struction costs ultimately remained relatively high in 2024. 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. Across all sectors, the above-referenced eco - nomic factors slowed and bottle-necked sales and refinance traffic except for certain, limited metropolitan statistical areas that were “popular” among institutional debt and equity participants, or where rent-growth or other economic/market factors were able to overcome challenges (or both). This chapter will summarise how the past year’s general real estate trends will shape the market in Alabama for the future. The Housing Market Due to high mortgage rates and incredibly low inventory availability, the housing market remained very competitive for new buyers. Dur - ing the COVID-19 pandemic, homes that sky - rocketed in price were still affordable for many buyers due to low interest rates. Now, home pric - es and interest rates are high, and sellers who purchased homes under low mortgage rates are not motivated to sell, thus locking up supply and driving home prices even higher. The median sale price of a home as of the fourth quarter of 2024 was USD419,500. As home prices have undergone significant increases, and homes on the market are sold far above listing price, the result is a competitive market with sparse inven - tory, leaving many hopeful homeowners turning to renting. However, in one of the fastest-growing areas in Alabama, Huntsville’s major establishments (such as Google, NASA, Boeing, Toyota and the federal government) continue to bring educated workers into the local real estate market. This demographic has held home ownership rates steady, especially for those with household incomes greater than USD100,000. Also, areas
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