Louisianans still flock to sunny Alabama beaches. But the condo market is facing a quiet storm.

Louisianans will flock to Gulf Shores and Orange Beach over the next few months, drawn to the 32-mile stretch of sugar-white sand and blue water less than a three-hour drive from New Orleans.

But while the Alabama Gulf Coast remains popular with beachgoers and many parts of Baldwin County are booming, the massive condominium complexes that line the shore are having a harder time attracting buyers.

Condo sales in Baldwin County, which includes Gulf Shores and Orange Beach, were down 17% last year compared to the year before, and are half what they were in 2021, according to the Alabama Center for Real Estate, which is part of the Culverhouse College of Business at the University of Alabama.

So far this year, the trend has continued. From January through March, there were 24% fewer condo sales than during the first quarter of 2024, though prices are up slightly.

The insurance crisis that has had a chilling effect on real estate activity in south Louisiana is also dampening sales of beachfront property two states over, according to brokers. And further complicating matters, they say, is a growing “blacklist” of condominium complexes that Fannie Mae, the federally backed mortgage finance giant, will no longer underwrite because it says the properties have not been adequately maintained or don’t carry enough insurance to meet new, stricter guidelines.

Nearly 70 complexes in Gulf Shores and Orange Beach are on the list, according to Boston attorney and condominium law expert Stephen Marcus, who has reviewed the list, which isn't available publicly. Real estate brokers and mortgage lenders said that with about one-fourth of all condo buildings in Baldwin County on the list, it is making it harder for people to buy and sell individual units. 

“We’ve had some deals crater because of all this,” said Chuck Norwood, a real estate broker with The Norwood Team RE/MAX of Gulf Shores, who has sold Gulf Coast property for more than 30 years. “It used to be you had to worry about whether a buyer was a qualified borrower to get a mortgage. Now, you have to worry about whether the property is qualified.”

About the blacklist

Fannie Mae and its sister organization Freddie Mac don’t write mortgages, but they buy home loans from lenders and resell them to investors, guaranteeing payment. That makes them a key part of the mortgage market, because loans that meet the agencies’ underwriting standards typically get more favorable interest rates and require lower down payments.

Fannie Mae has long kept a list of properties that didn’t meet its standards, rendering them “ineligible’ or “unwarrantable,” — terms the agency prefers to “blacklist.”

But after the Surfside building collapse in Florida in 2021, which killed 98 people, the list has grown from fewer than 1,000 properties to roughly 5,200 across the country, according to Marcus, whose firm Alcock & Marcus specializes in condominium law.

“If a condo is on the list, it can make it harder to sell or refinance because Fannie Mae won’t back the loan,” Marcus said.

A buyer, of course, can still get a conventional bank loan to finance a condo purchase, assuming they need to take out a mortgage at all. Many buyers of beachfront property don’t need a loan and can pay cash for what is essentially a second home or investment property.

But if they do need a conventional loan from a bank, the terms may not be as favorable because a lot of lenders follow Fannie Mae’s guidelines, Marcus said. 

“You won’t be able to get a 30-year fixed-rate mortgage and you’ll have to put down a lot more up front,” he added.

Florida has more than 1,400 blacklisted developments, the most of any state, according to The Wall Street Journal, which first reported on the list. It was followed by California, Colorado, Hawaii and Texas, all prone to natural disasters and restrictive insurance policies.

The insurance bugaboo

Alabama real estate experts say the stricter Fannie Mae guidelines and properties it won't underwrite are not the biggest problem facing their market. Rather, the issue is part of a broader insurance crisis that is impacting coastal communities and other areas at high risk for climate-related disasters around the country.

Like Louisiana, which is still feeling the effects of Hurricanes Ida and Laura in 2021 and 2022, the Alabama Gulf Coast was hammered by Hurricane Sally in 2020. In the years since, several carriers have left the state altogether. Insurance premiums have tripled for coastal properties, according to local agents.

“Insurance is the bugaboo,” said broker David Swiger of Swiger & Co. Realtors in Gulf Shores. “What we are running into at every single condo, even those off the beach, are insurance assessments and insurance increases because we do not have enough carriers.”

Insurers that are still doing business in the area are frequently refusing to cover the full, insured replacement value of a building, which lenders require for a mortgage, according to Rose Rausch, a lender with Magnolia Mortgage Co., based in Mobile.

“A lot of insurance companies don’t want to cover 100% of wind and hail damage,” said Rausch, whose firms has helped finance several condo deals that Fannie Mae rejected. “Instead, they’ll cover about half, so people are having to stack multiple policies.”

As insurance companies crack down on what they are willing to cover, lenders are requiring that condo associations increase the amount of cash they keep in reserves in order to make up for expected shortfalls when a storm occurs. The HOAs, in turn, are increasing what they assess unit owners.

“If you’re buying a condo as a second home, years ago you could rent the stew out of it,” Swiger said. “Today, it’s tough to make a living on it because you will have an assessment that is five-, six- or seven-thousand dollars a year.”

Veteran real estate agents say they’re starting to feel the effects of it all after a decade of boom years.

“The interest rates were not enough to slow us down but the combination with the insurance is starting to take its toll,” said Mike Cranston, a broker with RE/MAX of Orange Beach.

Taller, newer, no deferred maintenance

Despite the challenges, the Baldwin County beaches and surrounding community continue to grow, according to Norwood. Roughly 20 new people move to the county every day, drawn to the area’s thriving economy and good public schools.

Investors looking for vacation homes continue to shop. Real estate agents say they’re plenty busy showing properties — they’re just closing fewer deals.

“People are still buying, but units have to be in good condition,” Swiger said. “Buyers want a turnkey deal. No repairs, no deferred maintenance.”

Taller, newer condos built to the latest safety standards, even if more expensive, are selling better than older, low-rise and “stick-built” properties, according to Norwood, who said buyers have more leverage than they did a few years ago, especially if they’re able to pay cash.

Cranston said the market is still fairly competitive and that buyers who want to finance a condo can get a mortgage, though perhaps with less favorable terms.

“We encourage buyers to use a local lender,” he said. “You need to steer your client to the right lender from the outset.”

Norwood, who has been selling Alabama beachfront property since the 1980s and has counted lots of Louisianans among his clients, has worked through down cycles in the past and is not panicked about what, by all accounts, is a slowdown.

“We have a robust rental market, so it is just one of those things we are going to have to work through,” he said. “A lot of people still want a piece of the beach for sure, even though these other things are not as good as they were 10 years ago.”