Finding Value in a Cooling Market: Undervalued Housing Regions Poised for Resilience

The U.S. housing market is at a crossroads. Buyer leverage has surged, inventory has swelled, and price adjustments have become routine—yet beneath the surface, regional disparities offer clues to where undervalued opportunities lie. The latest Real May 2025 Agent Survey reveals a market shifting toward buyers, but not uniformly. For investors, the key is to distinguish between temporary oversupply and fundamental strength, pinpointing regions where resilient demand will eventually rebalance the scales.

The Shift to Buyer Dominance

Buyers now hold the upper hand in 43% of U.S. markets, the highest share since tracking began. This reflects a 31.5% year-over-year (YoY) surge in active listings, with inventory reaching post-pandemic highs. Yet this growth is uneven. The South and West, fueled by post-pandemic construction booms, lead with inventory increases of 32.9% and 40.7% YoY, respectively. Meanwhile, the Northeast lags, with inventory up just 19%—still 44% below pre-pandemic levels in markets like New York.

Regional Divergence: Where to Find Value

South and West: Bargains, But Beware Overbuilding

Markets like Phoenix (price reductions at 31.3%) and Tampa (29.9%) exemplify the price corrections in high-construction regions. Overbuilding in cities such as Austin and Denver has led to median price declines of 5.8%–6.3% YoY, creating opportunities for buyers. However, investors must tread carefully: oversupply in these areas may persist until mortgage rates ease or demand recovers.

Strategic play: Focus on job-growth hubs (e.g., Austin's tech sector) where long-term demand is anchored, even if short-term price adjustments are steep.

Northeast and Midwest: Stability Amid Scarcity

The Northeast stands out for its price resilience. Despite modest inventory growth (19% YoY), median list prices held steady (+0.1% YoY), and price per square foot rose 3.1%—the strongest regional growth. This suggests a constrained supply of desirable properties, particularly in urban centers.

The Midwest mirrors this pattern, with median prices down only 1.6% YoY despite inventory growth of 22.9%. While not as robust as the Northeast, its slower inventory recovery hints at lingering supply shortages in smaller cities.

Strategic play: Target areas with strong employment anchors (e.g., healthcare in Boston, manufacturing in Chicago) where demand is less sensitive to rate hikes.

The Role of Construction and Affordability

Regions with robust post-pandemic construction, such as Phoenix or Denver, face time-on-market spikes (e.g., Nashville's 19-day increase). This oversupply, combined with high mortgage rates (~6.8%), has forced sellers to lower prices. Conversely, areas with limited construction (e.g., the Northeast) face supply constraints, sustaining price pressure even as demand softens.

Navigating Economic Uncertainty

Agents cite economic uncertainty as the top buyer concern (28% of responses), surpassing inventory shortages. Yet this anxiety also creates a buying opportunity:
- Price reductions hit a record 19.1% of listings, giving buyers leverage to negotiate.
- Cash sales (27%) and investor activity (17%) remain elevated, signaling institutional confidence in undervalued markets.

Investment Thesis: Buy Where Fundamentals Outweigh Oversupply

The optimal strategy is to prioritize regions with strong employment bases, constrained inventory, or price resilience, even if current prices are falling.

1. Northeast Urban Centers: Limited inventory and stable prices make cities like Boston and Philadelphia attractive for long-term holds.
2. Midwest Job Markets: Cities with diverse economies (e.g., Columbus, Ohio) offer balance between affordability and demand stability.
3. Strategic Sun Belt Markets: Focus on areas with job growth (e.g., Austin's tech sector) where temporary overbuilding will eventually correct.

Risks and Timing

• Mortgage rates: High rates (6.81%) remain a hurdle. Monitor Fed policy: a rate cut could accelerate demand recovery.
• Inventory normalization: Oversupplied markets may take 12–18 months to rebalance.

Conclusion

The May 2025 data paints a market in transition, but not a collapse. Undervalued opportunities exist in regions where supply constraints or strong fundamentals underpin demand. Investors who act now—selectively—can position themselves to benefit as inventory corrects, rates stabilize, and economic confidence rebounds. The next 12–18 months will reward patience and precision in these divergent markets.