Terraform fails to modify DNS settings a recently created VPC Peering connection because it is not yet active
Figured it out!
The problem is that those DNS settings set in aws_vpc_peering_connection_options cannot be set until the peering connection is active (approved). It was only depending on aws_vpc_peering_connection existing, therefore was running at the same time or before aws_vpc_peering_connection_accepter.

This was simply fixed in aws_vpc_peering_connection_options by getting the vpc_peering_connection_id from aws_vpc_peering_connection_accepter instead of aws_vpc_peering_connection, so that the terraform dependency tree would automatically have the dependency work in the correct order.

Before:

resource "aws_vpc_peering_connection_options" "sb_vpc_peering_options" {
  vpc_peering_connection_id = aws_vpc_peering_connection.sb_vpc_peering.id

  accepter {
    allow_remote_vpc_dns_resolution = var.accepter_dns_resolution
  }

  requester {
    allow_remote_vpc_dns_resolution = var.requester_dns_resolution
  }
}


After:

resource "aws_vpc_peering_connection_options" "sb_vpc_peering_options" {
  vpc_peering_connection_id = aws_vpc_peering_connection_accepter.sb_vpc_peering_accepter.id

  accepter {
    allow_remote_vpc_dns_resolution = var.accepter_dns_resolution
  }

  requester {
    allow_remote_vpc_dns_resolution = var.requester_dns_resolution
  }
}