South and Midwest Lead in Housing Market Growth Amid Shifting Dynamics

The U.S. housing market is undergoing a geographic realignment, with the South and Midwest emerging as the most dynamic regions for homebuilding, affordability, and buyer demand. Realtor.com’s 2025 housing report highlights a stark contrast between these regions and high-cost coastal markets, driven by construction booms, policy shifts, and evolving buyer preferences.

Market Trends: A Regionally Divided Landscape

The South and Midwest dominate in home price stability and inventory growth, key metrics for investors seeking sustainable opportunities. National home prices are projected to rise just 3.7% in 2025, down from 2024’s 4%, as supply expands. However, regional disparities are stark:

• South: Inventory grew 31.1% year-over-year, with markets like Atlanta (GA) and El Paso (TX) leading in sales growth and price moderation.
• Midwest: Inventory rose 17.7%, with cities such as Cleveland (OH) and Des Moines (IA) offering affordability gains.
• West: While inventory surged 40.3%, prices remain elevated, with San Francisco seeing a 4.9% decline in median prices since 2019—a sign of cooling demand.

Affordability: The South’s Competitive Edge

The South’s affordability advantage is clear. Median rent growth in cities like Austin (TX) and Birmingham (AL) is projected to decline by 0.1% in 2025, while high-cost hubs like New York City face stagnant demand. First-time buyers are increasingly turning to states like Florida, Texas, and Ohio, where 25% down payment assistance programs (proposed under a Trump administration) could further boost entry-level purchases.

Construction Boom: Where the Jobs Are

The South and Midwest are also outpacing other regions in new construction. Single-family housing starts are expected to rise 13.8% in 2025, with states like Arizona, Georgia, and North Carolina leading the charge. This aligns with federal proposals to unlock federal land for housing development and streamline zoning rules, which could reduce construction costs by $90,000 per home.

In contrast, coastal markets like California and Washington face headwinds: restrictive zoning, environmental regulations, and rising construction costs tied to immigration policy changes.

Policy Risks: Tariffs vs. Tax Cuts

While pro-housing policies could boost affordability, trade policies pose a wildcard. Tariffs on steel and lumber—common under a Trump administration—could offset construction cost savings, keeping prices elevated. Investors should monitor:
- Mortgage rates: Projected to average 6.3% in 2025, but risks of a rebound to 6.5% if inflation accelerates.
- Regional job growth: Markets tied to tech (e.g., Austin) or manufacturing (e.g., Cincinnati) may outperform due to steady employment.

Investment Implications: Where to Focus

1. Buy-to-Rent in Sun Belt Cities:
2. Atlanta, Phoenix, and Orlando offer rental vacancy rates nearing pre-pandemic norms (e.g., 6.9% in Phoenix), with moderate price growth and strong tenant demand.

4. Single-Family Resales in Midsize Markets:

5. Target cities like McAllen (TX) or Virginia Beach (VA), where inventory is growing but remains balanced (months’ supply: 4.1 in 2025).

6. Avoid Overvalued Coastal Markets:

7. San Francisco and Seattle face price declines as remote work and high costs drive buyers to cheaper regions.

Conclusion: The South and Midwest Are the New Core

The data underscores a clear geographic shift in housing demand. The South and Midwest, fueled by construction booms, policy tailwinds, and affordable pricing, are now the epicenter of growth. Investors ignoring these regions risk missing out on the next decade’s opportunities.

Key statistics reinforce this trend:
- Inventory growth: The South’s 31.1% rise vs. the Northeast’s 11.3% signals supply-side advantages.
- Price resilience: While Phoenix and Austin prices grew modestly, coastal markets like San Francisco saw declines.
- Buyer sentiment: Markets with price reductions (17.5% nationally) are adjusting to affordability limits, making bargains accessible in balanced regions.

The housing market’s future belongs to those who follow the Sun Belt’s rising tide—and avoid the rocky shores of overpriced coasts.

Data sources: Realtor.com 2025 Housing Report, U.S. Census Bureau, Federal Reserve Economic Data.