Struggling real estate markets in the South are set up for a comeback

Homebuilders once loved the Sun Belt.

The warm, welcoming states in the lower half of the US offered ideal conditions for those in the business of selling new homes: good jobs, low taxes, vast suburbs, and a steady stream of movers.

When housing demand took off in 2020, builders saw bigger dollar signs and began cranking out new construction across the Sun Belt at a feverish pace.

Lately, though, the region has brought them nothing but heartache.

No states better encapsulate the housing headspin of the past half-decade than Texas and Florida.

The boom times, which lasted until mid-2022, were wild: hordes of moving trucks pulling into balmier climates, buyers racing toward ever-higher bids, homes flying off builders’ websites sight unseen.

As quickly as the fever built, though, the comedown proved equally jarring.

In Austin, the poster child of the home-price collapse, values remain more than a quarter below their 2022 peak, per Zillow.

Cape Coral, Florida, another bygone symbol of the housing boom, has seen prices slide by 22%.

For the past couple of years, the sun has no longer been shining on the Sun Belt.

The twin beacons of the housing bust are showing signs of a turnaround, however.

Across Texas and Florida metros, year-over-year price declines are slowing to a creep or even reversing into positive territory.

For the first time in a while, the pool of houses available for sale is shrinking, giving sellers some breathing room and forcing homebuyers to act with a little more urgency.

Some former hot spots in the lower half of the US — think Phoenix or Las Vegas — are charting a similar, if slightly less dramatic, course.

In places like Houston, Dallas, Tampa, and Jacksonville, prices still lag slightly behind last year’s already lackluster levels.

Builders are more intent on clearing out their existing inventory than staking out new subdivisions, and they’re under pressure to hand out deal sweeteners — or even slash prices — in order to keep sales moving.

Among regular home sellers, the most desperate are simultaneously listing on the rental market to see if they can get any bites.

After a few years of false rebounds and mortgage-rate headfakes, economists are understandably hesitant to call the market’s bottom in anything more than a caveat-laden whisper.

But there are some early signs that peak pain in the Sun Belt is behind us.

The uneasy recovery in places like Texas and Florida, home to the biggest COVID-era swings, shows what similar rebounds could look like for parts of the country that didn’t see quite the same highs and lows.

For right now, at least, “less bad” will have to be good enough.

I recently spoke with an Austin homebuyer who offered a markedly different perspective from the doom-and-gloom of late.

To be fair, Rick Palacios Jr. isn’t your average home shopper: He’s the director of research for John Burns Research and Consulting, a firm that advises big-time investors and builders on the shifting winds of the housing market.

In July, he bought a house in a suburb south of Austin called Dripping Springs, where he plans to move from California in the fall.

Palacios is relocating for family reasons, but putting on his analyst hat, he’s equally happy with the decision.

Austin, he tells me, is “one of those markets where, hey, this is kind of an opportunistic time to purchase.” The price declines there have been so steep since mid-2022, when spiking mortgage rates stymied housing demand, that John Burns now ranks Austin as the only “fairly priced” large metro in the country, based on an assessment that compares the current and long-term ratios of housing costs to incomes (Austin is trending about 9% above its historical average).

Indianapolis, on the other hand, is labeled “very overpriced,” with the current ratio 43% above the long-term figure.

Also at the top end of the scale are Philadelphia and Chicago, neither of which saw much new housing construction in recent years.

Sun Belt cities like Tampa, Houston, and Dallas all appear tame by comparison — overpriced, sure, but more in the 15% to 20% range.

Metros across the South, including Austin, still boast the kind of strong “fundamentals” that suggest future housing demand: well-paying jobs, young families, and slower-but-still-steady migration.

The biggest challenge for sellers across the region, Palacios tells me, is working through that influx of supply.

The two most oversupplied states, Florida and Texas, have seen the sharpest drops in unsold inventory held by homebuilders: down 37% and 29% from their respective peaks, John Burns found.

The Southwest region as a whole has seen that figure decline 29% from a year ago.

Fewer homes are lingering on the market across the region.

In July, the total number of active listings in Austin was down nearly 5% from the peak last year, according to Zillow — not a big drop, but a stark change after several years of rapidly rising inventory.

Cape Coral and Jacksonville, Florida, have seen bigger declines, with active listings down by roughly 20% and 14%, respectively, from a year earlier.

Other once-overheated markets like Tampa, Phoenix, Dallas, Houston, and even Denver all tell similar stories of inventory either leveling off or dropping from the year prior.

John Burns also tracks “months of supply,” or the time it would take for a given metro to clear out the number of homes sitting on the market at the current pace of sales.

Phoenix’s 2.7 months of supply is down roughly 18% from a year ago.

Austin, Jacksonville, Boise, and Miami have also seen double-digit percentage decreases.

Las Vegas, Denver, Houston, and San Antonio have seen smaller but notable declines.

Builders are still “very skittish” about adding more supply in Austin, specifically, Palacios tells me.

But recent comments show the huge, publicly traded players are sweetening on other parts of the Sun Belt, even if demand isn’t overwhelming.

In late July, the CEO of Meritage Homes cited “parts of Texas, Southern California, Atlanta, Raleigh and Coastal Carolinas” as the company’s strongest performers, which he said showed “more market strength in geographies with limited inventory.” The chief executive of D.R.

Horton said markets across the Southeast, particularly in Florida, “seem to be performing pretty consistently,” which he deemed “encouraging.” The CEO of PulteGroup shouted out Greenville and the coastal Carolina markets, but saved his most effusive praise for Florida, which saw orders increase nearly 20% year over year in the second quarter.

He was also “encouraged” by sales in Texas, but “not ready to declare victory there.” Executives are prone to dispensing optimistic yet measured comments in quarterly calls with Wall Street analysts, playing up the good and jargon-ing their way through the bad.

Combined with the inventory figures and sales prices, though, statements like these sound a lot like the beginnings of a Sun Belt rebound. “We can clearly see that supply has come down in a lot of markets in a big, meaningful way,” Palacios tells me. “So even if you don’t get a ton of demand, it helps put a floor on prices.” Mischa Fisher, Zillow’s chief economist, tells me there’s a “very good chance” that Florida and Texas have found their bottom.

He hedges, though, because he remembers the back half of 2023, when it looked like things might be turning around for the former superstars of the Sun Belt.

Home prices were either declining at a slower pace or merely flatlining, suggesting the beginnings of a climb back to normal. “I mean, in finance they call it a ‘dead cat bounce,'” Fisher tells me, referring to Wall Street parlance for the false hope that can sometimes briefly accompany an otherwise flailing asset.

The Sun Belt continued to struggle.

All kinds of factors have complicated the recovery: volatile mortgage rates, tariff havoc, the war in Iran, and general pessimism about the job market and the broader economy.

The typical home-loan rate is again flirting with 7%, higher than it was at this point last year, and Fannie Mae recently said it expects mortgage rates to hover around 6.8% for the rest of the year — more than double the rock-bottom rates that spurred all those moves back in 2021.

Part of the reason that home sales remain stuck in a rut is that most would-be sellers simply don’t have to make a move.

They may be itching to downsize or upgrade, but they’d rather hold on to their relatively cheap mortgage rates than brave the market.

Last fall, the housing research company Parcl Labs tallied up the price cuts and the length of time homes were languishing on the market and arrived at a damning, if not all that surprising, conclusion: Sun Belt home sellers were the most desperate in the country.

Jason Lewris, a cofounder of Parcl Labs, says he still sees more pain in store, particularly for Texas sellers.

Parcl recently found that nearly half of Texas listings had seen a price cut. “I think there’s more room to go down over the next year,” Lewris tells me.

Fisher, similarly, doesn’t see anything to suggest that price declines in Texas are over.

But prices aren’t falling nearly as quickly as they were a year ago, indicating the worst of it could be in the rearview mirror.

If the trend continues, he says, prices could turn positive by 2027. “We’ve basically been on a gradual improving streak,” Fisher tells me.

The Texas trajectory shows what the rebound could look like in places where builders churned out lots of new homes.

It’ll be shaky and uneven, with buyers still hesitant to dip their toes into the market and remaining inventory gluts continuing to weigh down home prices.

The role of mortgage rates is also clear in Florida, where there’s a vast gulf between the luxury segment and the rest of the market.

The pace of high-end condo sales in Florida has increased 24% year over year, but “the bottom is unchanged,” says Mike Simonsen, the chief economist at Compass.

There are some Florida-specific challenges for older condo sales, but buyers at the more affordable price points are also much more sensitive to interest rates.

This dynamic shows up in Florida’s single-family home sales as well, where luxury list prices are up 21% year over year, compared to a gain of just 3.3% for homes in the lowest price quartile.

With mortgage rates showing no signs of easing up, buyers will probably return in fits and starts rather than all at once.

After a few years of housing analysts crossing their fingers for a pickup in home sales, it’s fair to wonder why this time might be any different.

But keep an eye on Texas and Florida, the most extreme examples of this cycle’s downturn, which just might be starting to show us what the other side looks like.

James Rodriguez is a correspondent on Business Insider’s Discourse team.

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