K-Shaped Economy Still Visible in Housing Market, Data Shows
The K-shaped economy is “over,” according to Treasury Secretary Scott Bessent.
“I got sick of hearing about this K-shaped economy,” Bessent said in an appearance on CNBC’s “Squawk Box.” “I can say here definitively, the K-shaped economy is over.”
The term describes an economy in which segments of the market move in sharply different directions, creating the eponymous K shape. It entered the common lexicon last summer as shorthand for the widening divide between higher earners who continued to prosper in an environment of rising costs and everyone else.
Housing became one of the clearest examples. As affordability pressures kept many lower- and middle-income Americans from buying, the upper end of the market proved far more resilient.
Bessent argues that gap is now closing. He has pointed to stronger wage growth among lower-paid workers as evidence that the lower arm of the K is finally beginning to turn upward.
“We’re seeing more of a C economy where the lower end of wage earners are finally calling it back, just like they did in President Trump’s first term,” he added.
But the housing market has yet to make that turn.
A Realtor.com® analysis of transaction data shows the lowest-priced homes continuing to lose ground faster than any other segment of the market, while sales between $1 million and $2 million have gained ground.
“That’s the real edge of the K shape,” says Hannah Jones, senior economist at Realtor.com. “‘Starter homes vs. affluent move-up buyers,’ not ‘everyone vs. the ultrawealthy.’”
The housing market remains K-shaped
While a C-shaped recovery may be visible elsewhere, Jones says it has yet to reach the housing market.
“Bessent’s C-shaped argument is that lower earners are now catching up, which would imply growth broadening back into value and entry-level segments rather than staying concentrated at the top,” says Jones.
“Housing doesn’t support that story right now. The entry-level tier isn’t stabilizing. It’s still the fastest-declining segment nationally in both periods we measured, and it got worse, not better, heading into 2026,” she adds.
Her analysis of national transaction data shows just how wide that divide has become.
In 2025, sales of homes under $200,000 fell 11% from the year before. Sales between $1 million and $2 million, meanwhile, rose 3.3%—the only price tier to post annual growth.
The gap became even wider in the first five months of 2026. Sales below $200,000 were down 14.4% year over year, compared with a decline of just 0.6% for homes between $1 million and $2 million.
The composition of the market has shifted in the same direction.
Homes priced below $200,000 accounted for 20.5% of transactions in 2024. By 2025, their share had fallen to 19.4%, a decline of 1.14 percentage points—the largest loss of any price tier.
At the other end of the divergence, homes between $1 million and $2 million increased their share from 5.6% to 6.2%, a gain of 0.54 percentage points.
Jones describes that combination as a “textbook K-shape signature.”
“That combination, volume falling fastest at the bottom, share rising in the upper middle, even as total sales shrink, is the textbook K-shape signature,” she says.
And so far this year, the pattern has persisted.
Through May, homes priced below $200,000 had lost an additional 1.2 percentage points of market share compared with the same period a year earlier, falling to 18.7% of transactions. The $1 million-to-$2 million segment gained an additional 0.55 percentage points, reaching 6.6%.
The divide is even sharper in some parts of the country
In some markets, those gaps are even more pronounced.
In the Midwest, sales below $200,000 fell 16.9% so far in 2026 compared to 2025, while transactions between $1 million and $2 million rose 9.8%—a 26.7 percentage point gap and the widest of any region.
The South shows a similar split, with entry-level sales falling 12% while $1 million-to-$2 million transactions posted 0.9% growth.
For Daniel Cabrera, owner and founder of Sell My House Fast SA TX, the diffrence is clear as day.
“The luxury market has a shrinking supply and bidding wars, while the entry-level segment has an increasing inventory, due to the fact that the property sits, as the folks that would buy it cannot qualify,” he says. “One and the same city experiencing two opposing weather phenomena.”
Financing is likely playing an outsized role. Mortgage rates have remained stubbornly high since their all-time lows in the early 2020s. In the past year alone, they’ve spiked nearly 0.5 percentage points, which can add hundreds of dollars a month to a mortgage bill.
That can be a deal breaker for buyers at the lower end of the price spectrum. But at the higher end, buyers are more likely to have the cash, assets, or income needed to absorb elevated borrowing costs.
And if you’re doubtful, consider that, under today’s mortgage rates, a homebuyer would need an income of roughly $450,000 to afford a $2 million home, assuming a 10% down payment, no other monthly debt obligations, and excluding property taxes and insurance.
Under those same assumptions, a homebuyer would need to make closer to $50,000 to afford a $200,000 home.
Michelle Griffith, a broker at Douglas Elliman based in New York City, says that power differential is at play in her market.
“At the higher end of the New York City market, we’re still seeing buyers who have substantial liquidity and less dependence on financing continue to transact. The buyers feeling the most pressure are those who are more sensitive to financing costs and the overall cost of ownership.
“That’s where the K-shaped dynamic becomes most visible,” she adds.
What would it take for housing’s K to close?
Of course, that doesn’t necessarily mean Bessent is wrong about the direction of the economy overall. But if his C-shaped recovery is going to reach housing, the data should eventually begin to look different.
“A C shape emerging in housing would look like sub-$200,000, and $200,000-to-$500,000 transaction counts leveling off or ticking up, and the gap between the bottom and top tiers narrowing. Instead, that gap has held or widened,” says Jones.
There are important limitations to the comparison.
Home price is not the same thing as household income. A buyer purchasing a $180,000 home is not necessarily low-income, just as a $1.2 million purchase does not automatically identify a high-income household.
At the same time, the supply of homes below $200,000 has shrunk as prices have risen, meaning part of the decline in that tier can reflect homes migrating into more expensive price bands—not simply buyers disappearing from the market.
And there is another possibility that cuts most directly in Bessent’s favor: Wage gains can show up before housing activity does.
Bessent has pointed to gains among lower-paid workers as evidence that the bottom of the economy is beginning to recover, including a roughly 2% real wage gain. But even rising wages must contend with home prices, mortgage rates, down payments, and qualification standards before they translate into additional home purchases.
“A wage recovery at the bottom could take a few quarters to show up in purchase activity, so we can’t fully rule it out with this data alone,” Jones says.
There may be signs that the lower end of the broader economy is beginning to improve. But through May, that recovery had yet to erase the divide in housing. For now, at least, one arm of the K is still falling faster than the other.
