Came across a report from Realtor.com this week, their Housing Alignment 2026 study, and it got me pulling our local numbers to see if it held up here in Phoenix. It did, and once I dug further it turned into a bigger story than I expected.
What "K-shaped" actually means
The term they use is a "K-shaped" market. Picture the letter K: one leg goes up, one goes down, both starting from the same point. That's what's happening in housing right now. It's not moving as one thing, it's splitting into two.
This has been building for four years, not weeks
This trend goes back to 2022, when mortgage rates jumped from around 3% to over 7% in less than a year. Homeowners who had a 3% rate stopped selling, because moving meant trading it for something twice as expensive. Economists call this the lock-in effect, and by one federal estimate it kept close to 1.7 million homes off the market between 2022 and 2024. Combine that with prices that had already run up hard in 2020 and 2021, and entry-level buyers have been getting squeezed for close to four years.
A lot of people assume that pressure has eased since then. Rates came down some, inventory built back up some, so it feels like things loosened. The data doesn't back that up. Entry-level buyer engagement is still falling, not recovering, and it's now sitting below where it was in 2019. Four years in, this trend hasn't turned a corner. It's still moving the same direction it started.
What the split looks like in Phoenix right now
In Phoenix's $2M to $3M range, active listings have dropped from 580 last quarter to 487 today, and 54.9% of listings are closing versus 50.3% a year ago. The $3M to $5M range is tighter still, months of supply fell from 7.8 a year ago to 4.9 now. Buyers with the money to compete at that level are still competing hard.
At the bottom, Realtor.com's data shows buyer interest in homes under $370K dropped from 54% of all shopper activity in 2021 to under 43% today. Locally, inventory in the $400K to $600K range is flat to down compared to a year ago, not growing the way you'd expect if buyers were simply gaining leverage.
Two different engines, not one
The two ends are being pushed by different things, not the same thing. At the top, it's barely about rates at all. Almost half of luxury purchases nationally are paid in cash, and there's a significant wealth transfer underway between generations that's putting more buying power into that tier specifically. At the bottom, it's rates and payments, plain and simple. A buyer who could afford a $2,500 monthly payment two years ago can afford less house for that same payment today.
The piece that's specific to Phoenix: new construction
There's a piece of this that doesn't show up in the national data. For the past two years, builders have been aggressively buying down rates, some as low as high 3%, and throwing in closing cost credits and free upgrades to move entry-level product. A lot of buyers who might have bought a resale home in that price range bought new instead. That's part of why resale inventory at $400K to $600K has stayed flat instead of piling up. The demand didn't disappear, some of it just went to the builders. Heading into 2026, several builders have started pulling those incentives back, which means more of that demand may start flowing back to resale.
A caveat worth holding onto
The "buyers gave up and left" framing in the national report is an interpretation, not something directly measured. What was actually measured is that fewer people are clicking on affordable listings online. That's consistent with buyers getting priced out, but it's also consistent with buyers redirecting their attention to new construction, or deciding to rent longer while they wait. I don't think this changes the overall picture much, but a claim like that is worth holding a little loosely.
It's also a location story
The split tracks geography almost as much as price. Areas like Paradise Valley, Scottsdale, and Cave Creek are seller-leaning because resale inventory there is genuinely tight, and those are the areas carrying most of the Valley's luxury inventory. Areas like Buckeye and Surprise are buyer-leaning because new construction expanded supply fast there, and those areas skew entry-level. Some of what looks like a price story is also a location story.
What this means if you're buying right now
Above $2M, expect competition and be ready to move when you find the right property. Inventory is shrinking and buyers are closing faster. Under $600K, don't wait around for a wave of new listings to hand you leverage, it's not likely to show up on its own. And keep an eye on builder incentives in your target area. If they're pulling back where you're shopping, more buyers may start competing for the same resale homes you are.
What to expect through the end of the year
I'd expect the luxury tightening to hold or get more pronounced heading into Q4, that's typically a slower season for new listings anyway. On the affordable side, I wouldn't count on rates bailing anyone out. They dipped under 6% back in February, but they've climbed back into the high 6% range since, and the Fed has held rates steady for four straight meetings. Fed officials' own recent projections show a rate hike is now more likely than a cut before the end of the year. If that holds, the pressure on affordable-tier buyers doesn't ease, it holds where it is or gets tighter.
One more thing worth watching: 2-1 buydowns
A lot of builders sold these hard over the past couple years. Buyer gets a reduced payment in year one and two, then it steps up to the full note rate in year three, with the expectation baked in that they'd refinance into something lower before that happened. Rates haven't come down.
Take a fairly typical structure on a $400,000 loan: 4% in year one, 5% in year two, 6% for the life of the loan starting year three. That's payments of about $1,910, then $2,147, then $2,398 a month, close to a $490 climb from what the buyer budgeted around when they signed, and it lands right as the "we'll just refinance" plan runs out of runway. If a chunk of the buyers who took those deals in 2024 and 2025 can't absorb that or refinance out of it, worth watching whether that turns into forced sales in the entry-level tier next year. It could end up adding real resale inventory to a segment that's had almost none.
Where this leaves you
If you're active on either end of this, or want to know what it actually means for your specific search or listing, reach out any time.
Sources: Realtor.com, Housing Alignment 2026 (realtor.com/research/housing-alignment-2026) | The Cromford Report, Greater Phoenix price-range data | Federal Housing Finance Agency, Working Paper 24-03 on mortgage rate lock-in | Freddie Mac Primary Mortgage Market Survey, current rate data
