Regional Divergence in U.S. Housing Markets: Opportunities in the South and West Amid Cooling Northeast and Midwest Markets

The U.S. housing market in 2025 is defined by stark regional divergence. While the South and West have transitioned into buyer-friendly conditions, the Northeast and Midwest remain relatively tight, offering defensive value for investors. This divergence creates a compelling opportunity for geographic arbitrage, allowing investors to exploit imbalances in inventory, pricing, and demand across regions.

South and West: Buyer-Friendly Markets and REIT Opportunities

The South and West have seen a dramatic shift in housing dynamics. By June 2025, inventory levels in the South rose 29.4% year over year, with cities like Raleigh and Las Vegas experiencing inventory surges of 56.4% and 77.6%, respectively. Similarly, the West saw a 38.3% inventory increase. These gains have normalized post-pandemic shortages but come with a critical caveat: median list prices in the South and West have either stagnated or declined. For example, Cincinnati and Miami recorded price drops of -6.3% and -4.7%, while Phoenix and Sacramento saw significant declines.

The median time-on-market has also lengthened: the South's median time-on-market increased by 8 days, and the West by 7 days. Combined with price cuts (23% of listings in these regions reduced prices), these trends signal a buyer's market. For investors, this means discounted entry points and greater flexibility in negotiations.

REIT Opportunities in the South and West
Regional REITs in these markets are adapting to the new reality. For instance, REITs focused on multifamily housing and build-to-rent developments are capitalizing on oversupply. However, caution is warranted in the Southwest, where oversupply and weak rent growth (-6.3% in Dallas) have led to high vacancy rates. Investors should prioritize REITs with strong balance sheets and exposure to sectors like industrial or logistics, which remain resilient despite housing market volatility.

Northeast and Midwest: Defensive Value and Stability

In contrast, the Northeast and Midwest have maintained tighter markets. The Northeast's inventory grew by 17.6% year over year but remains below pre-pandemic levels, driven by persistent supply constraints. Median list prices in the region rose 1.8%, with cities like Baltimore and Virginia Beach seeing 7% increases. The Midwest's inventory rose 21.3%, but prices declined slightly (-0.9%), with Chicago lagging behind pre-pandemic levels.

These regions offer defensive value due to their stable demand fundamentals. The Northeast benefits from high-income urban centers and limited new construction, while the Midwest's affordability and build-to-rent developments create a balanced supply-demand dynamic. REITs in these markets, such as Ventas Inc. (VTR) in healthcare or Realty Income Corp. (O) in triple-net retail, have shown resilience, with the Northeast's healthcare REITs trading at a 27.98x LTM FFO multiple as of May 2025.

Actionable Strategies for Investors
1. Geographic Diversification: Balance portfolios by allocating to both South/West and Northeast/Midwest REITs. For example, pair a South-based industrial REIT with a Northeast healthcare REIT to hedge against regional risks.
2. Sector Arbitrage: Target REITs in non-cyclical sectors like healthcare, data centers, and self-storage, which are less sensitive to housing market swings. Digital Realty Trust (DLR) and Extra Space Storage (EXR) are prime examples.
3. Price-Centric Opportunities: In the South and West, focus on REITs with discounted valuations or undervalued assets. Look for price cuts in commercial real estate (e.g., office spaces in Phoenix) and consider REITs with exposure to logistics hubs.

Conclusion: Capitalizing on Regional Imbalances

The U.S. housing market's regional divergence in 2025 is not a temporary anomaly but a structural shift driven by economic, demographic, and regulatory factors. Investors who embrace geographic arbitrage can profit from the South and West's buyer-friendly conditions while leveraging the Northeast and Midwest's defensive stability. Key metrics—inventory growth, price cuts, and sector-specific fundamentals—provide a roadmap for navigating this landscape.

For those seeking growth, the South and West offer discounted entry points and REITs adapting to oversupply. For those prioritizing resilience, the Northeast and Midwest's tight markets and non-cyclical sectors provide a buffer against macroeconomic risks. By combining these strategies, investors can build portfolios that thrive in both volatility and recovery.