Buy the Dip? How to Profit From the Housing Market's Odd Divergence

The U.S. housing market is in a strange stalemate: existing-home sales are falling, yet prices hit all-time highs in April 2025. This paradox isn’t a sign of collapse—it’s a signal to dig deeper. Let’s decode this divergence and uncover where to deploy capital now.

Demand-Supply Dynamics: Why Prices Rise as Sales Fall

The National Association of Realtors (NAR) reported existing-home sales dropped 2% year-over-year in April 2025, but median prices jumped 1.8% to $414,000. This is no fluke—it’s math.

The drivers:
1. Mortgage Rates at 6.8%+: The 30-year fixed rate remains stubbornly high, pricing out many buyers. Yet, those who can afford loans are still competing in scarce inventory.
2. Inventory Crisis: Total housing stock rose 20.8% year-over-year to 1.45 million units—but that’s still only a 4.4-month supply. In regions like the Northeast, inventory is 40% below pre-pandemic levels.
3. Affordability Divide: First-time buyers (24% of sales) are frozen out, but cash-rich investors and high-income buyers are fueling price hikes.

Sector Implications: Play the Winners in This Split Market

1. Homebuilders with Affordable Housing Focus

The NAR’s data shows 75% of pre-pandemic sales levels are unmet—pent-up demand exists, but it’s concentrated in affordable homes.

• KB Home: Targets sub-$400k homes, a sweet spot for buyers priced out of existing listings. Its backlog is up 18% YTD.
• PulteGroup: Strong in the South and Midwest, where price growth is muted but inventory is tight. Both stocks are down 20% from 2023 highs—setups for a rebound.

2. Real Estate Tech Platforms

The housing market’s inefficiencies are a gift for companies streamlining transactions.

• Zillow: Its AI-driven valuations and instant-offer platform are reducing friction. Despite a 30% drop in 2024, Zillow’s revenue rose 15% QoQ in Q1 2025.
• Redfin (RDFN): The brokerage’s tech-heavy model is capturing market share as traditional agents struggle with low inventory.

Contrarian Plays: Banks and REITs in the Sweet Spots

1. Regional Banks with Mortgage Portfolios

While rising rates hurt refinancing, low delinquency rates (1.2% in Q1 2025) mean banks are safe—if they’re positioned right.

• Regions Financial: Operates in the South, where home prices are more affordable and demand is resilient. Its NIM (profit margin on loans) expanded to 4.1% in Q1, up from 3.6% in 2023.

2. REITs in High-Demand Rental Markets

Single-family rentals (SFRs) are booming as buying becomes unaffordable.

• INVH: Owns 74,000 homes in markets like Texas and Florida. Occupancy is 97%, and rents rose 7% YTD.

Risk Factors: Don’t Get Burned

1. Inflation Lingering: If the Fed hikes rates again (unlikely but possible), mortgage costs could spike further.
2. Job Market Shift: A slowdown in tech or housing construction jobs could reduce buyer pools.
3. Regional Busts: The West’s overpriced markets (median $628k) are vulnerable to a price correction if demand falters.

Conclusion: Target the Sectors, Not the Market

The housing market isn’t dying—it’s evolving. Avoid broad ETFs like IYR or XHB. Instead, focus on:
- KB Home (KBH) and PulteGroup (PHM) for affordable homebuilders.
- Zillow (Z) for tech-driven disruption.
- INVH and RF for steady income and geographic resilience.

Remember: Prices can stay high even as sales drop—but only if you’re in the right niches. Move fast, but stay selective.

The divergence is here. Make it work for you.

Investment decisions should be made with professional advice. Past performance does not guarantee future results.