Post-pandemic momentum reshaped the Sunbelt, but now builders and investors are facing a different kind of challenge.
Over the last few years, few regions saw as much attention, or as much capital, as the Sunbelt. Florida, Texas, and Arizona led the charge, riding high on net migration, pro-growth policies, and a seemingly insatiable appetite for housing.
But in 2025, the conversation is shifting. As newly built units hit the market, especially in the multifamily space, inventory is rising faster than demand. The question isn’t whether the Sunbelt is still a hot market; it’s how long it’ll take to absorb what was built.
Permitting: A Double-Edged Sword
One of the Sunbelt’s greatest advantages, ease of permitting, also created a unique challenge. In the wake of COVID-19, municipalities eager to meet housing demand accelerated approvals. Construction surged. For a while, it made perfect sense.
But today, many of those projects are coming online at a time when buyers and renters are more cautious. Supply has outpaced current absorption rates, particularly in metros where multifamily development has exploded.
Demand Hasn’t Vanished… It’s Evolved
While headlines focus on rising interest rates or slower showings, it’s important to step back. Demand hasn’t disappeared; it’s become more deliberate.
Buyers are being selective. Renters are weighing their options. Investors are looking more closely at yield and staying power. In this climate, properties that offer strong fundamentals: good location, efficient design, and competitive pricing, still perform.
The markets that adapt fastest to this shift will be the ones that continue to thrive.
A Tale of Local Dynamics
Not all Sunbelt markets are created equal.
Some cities, like Durham and Raleigh, are adjusting quickly, absorbing inventory and recalibrating expectations. Others, like Port Lavaca and Del Rio, are seeing longer days on the market or moderating rents, especially in neighborhoods with multiple new projects competing for attention.
Meanwhile, markets with tighter zoning or slower build cycles are seeing more pricing stability. This is where the value of local expertise becomes irreplaceable. Two ZIP codes in the same metro can be on opposite ends of the supply-demand spectrum.
What Smart Investors Are Doing Now
This isn’t a time to retreat – it’s a time to refine. Here’s what experienced investors are doing differently:
- Re-evaluating micro-markets within broader metros to understand where true demand lies.
- Factoring in new supply as part of acquisition underwriting. Not just comps, but the upcoming pipeline.
- Shifting strategies toward value-added and existing inventory, where competition may be lighter.
- Leveraging local lenders with on-the-ground insight who understand the nuances beyond national trends.
There’s no one-size-fits-all playbook, but there is still plenty of upside for those who know how to pivot.
Long-Term Outlook: Still Bullish
The Sunbelt’s long-term fundamentals remain solid. Population growth, business-friendly environments, and quality of life continue to make these regions attractive. But short-term dynamics require a more nuanced approach than in years past.
We’re not in a downturn; we’re in a recalibration. And in real estate, recalibrations often create the best entry points for well-informed investors.
Dominion Financial Services has been lending in these markets through every cycle. If you’re evaluating deals in the Sunbelt, talk to a lender who understands the local dynamics and can help you stay ahead of the curve.
