Why Homebuyers Face a Split Path in a Stalled Housing Market

No matter how you slice the numbers, the housing market is in a tight spot. Home prices keep climbing, home sales keep falling, and the dream of owning a home is becoming harder to reach for millions of Americans. But tucked beneath these bleak headlines is a surprising twist—homebuyers today are really shopping in two very different markets: new construction and existing homes.

For those looking to buy, the first major decision may not be about location or number of bedrooms, but about whether to pursue a newly built home or an existing one. And while both options come with trade-offs, a growing divergence between these two segments is shaping how and where homes are being bought and sold.

According to Lawrence Yun, chief economist at the National Association of Realtors, this divide is unusual. “Usually, new home sales and existing home sales move together,” he said. But that’s not what is happening today.

Existing home sales have slumped for three consecutive months, dipping another 0.5% in April. Compared to last year, sales are down 2%, reaching a seasonally adjusted annual rate of just 4 million—the lowest since September. Inventory remains tight, with only about 4.4 months of supply available. Homeowners with low mortgage rates are reluctant to sell, choking off fresh listings and creating fierce competition for what little is out there.

In contrast, the new construction market is gathering momentum. Sales of new homes jumped more than 10% in April, climbing to an annualized pace of 743,000. The reason? Builders have what many agents don’t: inventory.

With fewer resale homes hitting the market, buyers are looking to new builds as their best or only option. “We don’t have so much inventory of existing homes. For new homes, builders can simply build more,” Yun explained. As a result, newly built homes now make up a growing share of all home purchases—and their prices are becoming more competitive.

Historically, new homes have carried a hefty premium over existing ones—often 10 to 20 percent more. But that premium has shrunk dramatically. In April, the median price for a new home was $407,200, nearly $7,000 less than the price of a typical existing home. Builders have started responding to the affordability crisis by constructing smaller homes, aiming to appeal to more moderate-income buyers and even FHA borrowers. According to the U.S. Census Bureau, the median size of a new home is now down 12% from its peak in 2015.

This shift in pricing strategy may explain why new homes are suddenly so appealing. Builders are no longer focused solely on luxury properties—they’re adjusting to market realities, including interest rates, budget-conscious buyers, and stricter lending environments.

Still, buying new isn’t for everyone. New homes tend to be smaller and farther from city centers, and for growing families, that trade-off may not be worth it. As economist Robert Frick of Navy Federal Credit Union noted, “It’s really a question of family needs. I can see young families not wanting to buy a small new home because it just doesn’t fit their needs.”

Even with prices becoming more level, the decision between buying new or existing is still complex. Existing homes often offer more space, mature neighborhoods, and desirable locations. New homes, on the other hand, can offer modern amenities, builder warranties, and the benefit of skipping bidding wars.

For now, the split in the housing market appears likely to continue. Buyers are still facing high prices and limited choices, but those willing to consider new construction may find unexpected value—and fewer obstacles—waiting for them on the outskirts of town.

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Rising Mortgage Rates and Home Prices Reshape the Buying Landscape

The housing market is heating up once again, and not just because of seasonal trends. As mortgage rates climb, more buyers are pushing into the market, and that surge in activity is helping drive home prices even higher. Rising borrowing costs and increasing property prices, a double pressure, is starting to reshape how and when buyers make their move, and what it might mean for future affordability.

Sales of existing homes rose 4.2 percent between January and February of this year, reaching an annualized pace of 4.26 million units, according to the National Association of Realtors. At the same time, the median existing home price jumped to $398,400, a 3.8 percent increase from a year earlier. It’s a clear signal that despite elevated mortgage rates, housing demand is still alive and well. According to NAR Chief Economist Lawrence Yun, it is not a sudden drop in mortgage rates luring people back into the market, but rather a modest increase in inventory and a strong desire among buyers to act before prices rise even further.

So what is behind this upward price movement? A strong labor market, stubbornly low inventory and steady demand continue to be the driving forces. Even with mortgage rates hovering between 6 and 7 percent, buyers are motivated by concerns that waiting will only mean higher prices and fewer options. Job numbers from the U.S. Bureau of Labor Statistics support this behavior, showing a gain of 151,000 jobs in February and an unemployment rate of 4.1 percent which is a level generally seen as economically healthy.

But the most telling data point may be inventory. At the end of February, there were just 1.24 million unsold homes on the market, representing a 3.5-month supply at the current sales pace. A six-month supply is typically considered a healthy balance between buyers and sellers. With such limited inventory, competition is fierce, and prices are pushed upward as buyers race to secure a home before conditions become even more challenging.

This competitive pressure is also shaping who’s buying. First-time homebuyers made up 31 percent of transactions in February, a noticeable increase from 26 percent the previous year. Meanwhile, investor activity has cooled, falling to just 16 percent of purchases from 21 percent a year ago. With fewer investor bids in the mix, more homes are going to those intending to live in them, but many of those buyers are still bringing strong cash offers that help keep prices elevated even as mortgage rates climb.

For those who are not paying with cash, navigating this environment requires careful strategy. Buyers may need to adjust expectations, whether that means looking at smaller homes, different neighborhoods or older properties that might need work. Others may consider flexible financing options, such as adjustable-rate or interest-only mortgages. While these can lower initial payments, they also come with risks that must be understood fully before committing.

Some buyers are taking the approach of buying now and refinancing later, hoping for a dip in rates. Refinancing can lead to lower payments or better loan terms, but it is not without costs. Fees, new closing costs and possible delays all need to be weighed carefully. For those with patience, timing can be another tool, waiting until the fall or winter, when buyer activity tends to cool, might open the door to better deals and more negotiating power.

Even as buyers wrestle with these decisions, current homeowners are seeing benefits. Rising prices mean growing equity, and that can open up new opportunities. Yun notes that for every one percent increase in home values, American homeowners collectively gain roughly $350 billion in equity. That kind of wealth increase can help fund a future purchase, home renovation, or other investments.

In a housing market shaped by limited inventory, strong employment and rising costs, the dynamics are shifting. Buyers face tough choices, but with thoughtful planning and an eye on both short-term needs and long-term goals, it is still possible to find the right home, and make a smart move.

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Should You Pay Cash for a Home or Take Out a Mortgage?

More people than ever are showing up to the closing table with cold, hard cash. As of February 2025, nearly one-third of home purchases in the United States were all-cash deals, according to the National Association of Realtors. That statistic might make you wonder if skipping the mortgage and writing a check for the full price of a house is the smarter move. While paying in cash might sound like the fast track to homeownership, the decision is more complex than it seems. Whether you should pay cash or finance your purchase with a mortgage depends on your financial situation, your long-term goals, and the housing market where you plan to buy.

A cash offer means you’re using money you already have, with no need for approval from a lender. This can give you an edge in a competitive market, speed up the homebuying process, and save you thousands in closing costs and interest. On the other hand, taking out a mortgage allows you to keep more cash on hand for other priorities and potentially benefit from tax deductions and a stronger credit profile.

If you’re thinking about buying a home with cash, you need to be ready with substantial liquid assets. In addition to the purchase price, you’ll need to cover closing costs like legal fees and title insurance. The upside is you avoid lender-related fees and monthly mortgage payments. But just because you can pay in full doesn’t mean you should. The money used for a home purchase could instead be invested elsewhere or reserved for future financial needs like college tuition, retirement, or emergencies.

Cash buyers also enjoy peace of mind in terms of speed. Without loan underwriting or bank red tape, the transaction can close more quickly. Sellers often favor cash offers because they remove uncertainty and reduce the chances of the deal falling through. When every listing in your target area is receiving multiple offers, a cash bid might be what sets yours apart.

The savings over time can also be significant. When you pay in cash, you’re not just cutting out monthly principal and interest payments—you’re also avoiding the interest altogether. For example, buying a $425,000 home with cash instead of financing $340,000 with a 30-year mortgage at 6.5 percent could save you more than $430,000 in interest alone over the life of the loan.

However, mortgages come with their own advantages. Taking out a home loan allows you to keep much of your capital free for other uses. You might prefer to invest those funds in assets with higher returns, or simply want to maintain a cushion of liquidity in case of job loss or major repairs. Plus, mortgage interest is often tax-deductible, which can help reduce your tax burden if you itemize. On-time mortgage payments can also boost your credit score, which is helpful for future borrowing.

The decision becomes more nuanced when you consider the full cost of financing. On a $400,000 home with a 20 percent down payment and a 7 percent interest rate, you could end up paying over $446,000 in interest over 30 years, bringing your total cost to more than $766,000. That doesn’t include closing costs, which can tack on another 2 to 5 percent of the purchase price.

At the same time, a cash purchase that drains your savings might leave you financially exposed. You still have to pay property taxes, homeowners insurance, maintenance, and utilities—and you’ll need an emergency fund for unexpected expenses. It’s important to evaluate how much money you’ll have left over after the purchase and whether it will be enough to meet your ongoing needs and goals.

Choosing between cash and a mortgage isn’t just about dollars and cents. It’s also about strategy and peace of mind. If you want to keep your money invested or available for other purposes, a mortgage might be the better choice A. If you’re debt-averse or want to win a bidding war, paying in full could be the right move.

There is no one-size-fits-all answer. The best option comes down to what works for you—your finances, your market, and your priorities. Some buyers will find comfort in owning their home outright, while others would rather leverage their capital for long-term growth. In today’s market, where mortgage rates remain elevated, the decision becomes even more personal. As housing analyst Jeff Ostrowski put it, what looks smart on paper may not always feel right in real life. And when it comes to where you live, both logic and emotion deserve a seat at the table.

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Spring 2025 Marks a Turning Point for Homebuyers

The U.S. housing market is finally showing signs of shifting in favor of buyers, and this spring could be the most buyer-friendly season since the early days of the pandemic. After several years of tight inventory, elevated prices, and rising mortgage rates, more homes are hitting the market and sellers are starting to budge on price.

Joel Berner, senior economist at Realtor.com, believes the timing couldn’t be better for buyers who have been waiting patiently on the sidelines. Following a sluggish 2024, which turned out to be the slowest year for existing home sales since 1996, momentum is starting to pick up—and in a direction that benefits those looking to buy. A growing number of listings, longer market times, and a noticeable increase in price cuts are all contributing to a more balanced market.

Berner points out that this shift isn’t solely driven by mortgage rates. While lower rates can certainly draw more buyers into the market, they also tend to increase competition and push prices up. What’s happening now is different. The current conditions—more inventory, softer pricing, and sellers showing more flexibility—are creating organic opportunities for buyers to negotiate better deals.

Mauricio Umansky, founder of luxury brokerage The Agency, shares Berner’s view. He doesn’t expect a repeat of the dramatic price drops seen during the 2008 housing crash, but he agrees that buyers have more leverage than they’ve had in years. He says now is a good time to make strong offers and be bold, as the market is more receptive to negotiation than it has been in quite some time.

The increase in available homes is a major reason for the market shift. Sellers who had previously held off—many of whom locked in mortgage rates of 3% or lower during the pandemic—are finally starting to list their properties. This “lock-in effect” had created a bottleneck in supply over the last few years, but life events like job changes and growing families are forcing many to move despite the higher rates.

While mortgage rates haven’t dropped dramatically, they are projected to decline modestly. Realtor.com’s forecast expects rates to fall into the low 6% range by the end of 2025. For context, the current average on a 30-year fixed mortgage stands at 6.65% according to Freddie Mac. But even without dramatic rate changes, market behavior is shifting because of increased activity and changing seller attitudes.

Recent housing data backs up these observations. The number of homes actively listed has grown for 16 consecutive months and jumped 27.5% in February compared to the same time last year. Sales activity is also on the rise, with the number of homes under contract increasing by 18.2% year-over-year. However, homes are taking longer to sell, averaging 66 days on the market—almost a full week longer than last year.

This slower pace, combined with more listings and more cautious buyers, is widening the gap between asking and selling prices. As Umansky notes, sellers are now more likely to face offers below their original list price, and in order to close deals, they’ll need to be more realistic. If current trends continue, more price adjustments may be on the horizon.

In short, while it may not be a full-fledged buyer’s market just yet, spring 2025 is offering a rare window of opportunity for buyers who’ve been waiting for better conditions. With more choices, motivated sellers, and a bit more negotiating power, it might finally be the right time to make a move.

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How Closing Costs Might Help at Tax Time

When you finalize a home purchase or refinance, you’ll face a range of closing costs that can add up quickly. Most of the time, these charges include fees for appraisals, inspections, loan processing, and taxes. While most of these expenses are just part of the cost of doing business, some of them might actually save you money later—if they qualify as tax deductions.

Closing costs can range anywhere from 2% to 6% of the total loan amount, depending on whether you’re purchasing a home or refinancing. Buyers usually carry the bulk of these costs, though sellers often contribute as well, especially in markets where negotiations are flexible. Common fees include charges for loan origination, underwriting, and credit reports, as well as appraisal and inspection costs. Title search fees, title insurance, and discount points paid to lower your mortgage rate are also standard line items.

In most cases, the IRS doesn’t allow you to deduct closing costs since they’re considered part of the overall purchase expense, not an operational cost tied to the home’s use. However, there are a few exceptions. Mortgage interest is one of the most common deductions and is allowed on loans up to $750,000, or $375,000 if married filing separately, as long as the loan was taken out after December 15, 2017. Older loans may qualify for higher limits. You can deduct interest payments each year, as long as you still own the home and itemize your deductions.

Another possible deduction comes from mortgage points, which are considered prepaid interest. If certain requirements are met, the full amount of points paid may be deducted in the year you paid them. If not, the deduction can be spread out over the life of the loan. Private mortgage insurance, or PMI, might also be deductible if your income falls below IRS limits and you itemize your taxes. Property taxes are another potential deduction, both those paid at closing and annually, though these are capped at $10,000 per year for married couples filing jointly or $5,000 if filing separately.

For buyers of distressed properties, costs related to necessary repairs and maintenance might also be deductible under certain conditions. These deductions can usually be claimed in the year you pay them, over the course of your mortgage, or when you sell the property by adding them to your cost basis.

The 2017 Tax Cuts and Jobs Act impacted many of these deductions by increasing the standard deduction, making it less beneficial for some homeowners to itemize at all. As a result, fewer people are writing off mortgage interest and property taxes. However, these provisions are set to expire at the end of 2025, so tax benefits may shift again in the near future.

It’s also important to understand which costs are never deductible. This includes expenses like appraisals, home inspections, legal fees, title insurance, transfer taxes, surveys, and document preparation. Likewise, homeowners insurance, utility bills, and general repairs are not deductible. Still, some of these charges may be added to your home’s cost basis, which could reduce your capital gains taxes if you sell the home down the road.

After closing, it’s wise to keep every document related to your purchase or refinance. If you’re ever audited, you’ll want proof of what you paid and when. And since the rules can be confusing and depend heavily on your specific situation, it’s always best to consult a tax expert or financial planner to ensure you’re making the most of any possible deductions.

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