American ‘K-shaped’ real estate market features plenty of options for high earners — but little for the rest

America’s housing market has split in two: High-earning buyers and sellers still have choices and leverage, while everyone else faces shrinking options and rising costs. It’s a divide that mirrors the broader K-shaped economy defining 2025.

After an economic shock, parts of the economy shoot upward—like the top arm of the letter “K”—while others slide downward, forming a sharp split. The result is a recovery that rewards wealth and punishes everything else, widening the divide between those who can wait out volatility and those living paycheck to paycheck.

Now, that split is showing up across the economy from retail spending to job growth. But nowhere is it more apparent than in housing, where rising listings and cooling prices mean very different things depending on which side of the market you’re on.

“Sellers at the top of the market can quite literally afford to be more patient and price anchored,” explains Jake Krimmel, senior economist at Realtor.com®.

That’s because these sellers have choices: multiple properties, cash flow to float multiple mortgages, and enough savings to wait for the best offer. The typical homeowner doesn’t. Most are selling the home they live in, and the clock starts ticking the moment they list.

“The average family needs to sell to buy, so they’re more likely to cut their prices in order to secure their next move,” adds Krimmel. “Sellers of luxury homes have the luxury of time.”

Where patience pays

Even as 22 state economies flirt with recession, the wealthiest homeowners are holding firm, buoyed by the same forces that define the top of the K-shaped recovery: concentrated wealth, diversified assets, and the luxury of time.

“California and New York, which together account for over a fifth of US GDP, are holding their own, and their stability is crucial for the national economy to avoid a downturn,” explains Mark Zandi, chief economist at Moody’s Analytics. 

Those two states—alongside other affluent metros in the Northeast—anchor the upper curve of the housing market, where job centers in finance, biotech, and health care continue to generate steady demand, according to a recent report from Cotality.

Data from the Realtor.com Luxury Housing Report reinforces that strength. Even as the national luxury benchmark dipped 0.5% in September to $1.24 million, top-tier listings are taking only slightly longer to sell—79 days versus 62 for median-priced luxury homes. That gap has held steady for nearly a decade, underlining the fact that even when the broader market cools, the upper tier slows without stalling.

Markets like Santa Barbara, CA, now the nation’s priciest luxury metro, and Bridgeport-Stamford, CT, continue to command multimillion-dollar thresholds, supported by buyers who can pay in cash. Nearly half of all homes priced above $2 million sold without financing this year—proof that liquidity itself has become the defining edge of the modern housing cycle.

Where risk rolls downhill

That stands in stark contrast to households on the lower half of the K-shape. Here, affordability has eroded and uncertainty underpins every decision.

“Much like the K-shaped trend seen in overall consumer spending—driven largely by higher-income groups—lower-income potential homebuyers are facing challenges due to an uncertain job market, sluggish wage growth, and worsening financial conditions,” says Dr. Selma Hepp, chief economist at Cotality.

The firm’s latest data show that 1 in 5 US metros is now posting annual home-price declines—the largest share since mid-2023—while serious mortgage delinquencies are rising in several high-cost states, especially Florida, where once-booming markets like Tampa and Orlando are cooling fastest.

They’re concerning numbers made all the more confounding by the fact that lower home prices haven’t translated into a buying boom from those who have been on the sidelines for years.

Part of that discontent may stem from the fact that homebuying and homeownership costs are outpacing incomes. Escrow expenses are up 45% over the last five years, and real mortgage payments have jumped 72%, even after accounting for recent rate relief. 

And even with cooling prices in some areas, three-quarters of the nation’s top 100 markets remain overvalued, according to Cotality’s Home Price Index.

The power of those pressures combined have priced out first-time and lower-income buyers despite a modest uptick in supply and recent softness in mortgage rates. So even as listings rise, the entry ramp remains blocked, and while the housing market looks like it’s opening a door from afar, it remains locked.

The diminishing middle

Part of the danger of a K-shaped economy is how it hollows out the very group that once held everything together: middle-income earners. 

Once the backbone of both consumer demand and housing stability, middle-income earners have been shrinking for more than half a century. In 1971, about 61% of US adults lived in middle-class households, according to the Pew Research Center. By 2021, that share had fallen to 50%, while both lower- and upper-income tiers grew.

Now, that stratification has created undue reliance on high-income earners to prop up the economy overall and keep spending.

“For those in the bottom 80% of the income distribution, spending has simply kept pace with inflation,” Zandi shared in a recent X post. “The 20% that make more have done much better.”

Just look to Manhattan for evidence of how this pattern is repeating in the housing market. Cash purchases made up a record 69% of all home sales in the second quarter of 2025, according to Miller Samuel’s quarterly report for Douglas Elliman. At the same time, deals that included financing contingencies—where buyers can walk away if they can’t secure a loan—hit their second-highest level in a decade.

 The result is a split screen: a market still moving powered by players at the top, and slowing everywhere else.

The stakes: What happens if the top stops spending

The US housing market—and much of the broader economy—now rests on a fragile foundation: the continued confidence of the wealthy.

“The US economy is being largely powered by the well-to-do,” says Zandi. “As long as they keep spending, the economy should avoid recession. But if they turn more cautious, the economy has a big problem.”

That’s because if demand at the top softens, there’s little cushion beneath it. The middle class, already squeezed by stagnant wages and rising costs, can’t easily step in to fill the gap.

In a balanced economy, housing reflects broad-based confidence. In a K-shaped one, it mirrors concentration. And if the top curve bends, the rest may have nowhere to land. For never was a story of more woe than this, of buyers high and low.