For the first time in years, multiple forces in the housing market are aligning in ways that could benefit regular homebuyers and sellers simultaneously. Fresh data from the National Association of Realtors shows that home prices are now declining in approximately 50% of states, with the West Coast taking the biggest hit at a 1.4% year-over-year decrease, bringing the regional median to $620,700. This represents a dramatic shift from the relentless price increases that characterized the pandemic era, and it's creating the first real buyer leverage we've seen since 2019. The national median remains essentially flat with just a 0.2% increase, indicating that this weakness is concentrated in specific regions rather than reflecting a universal market collapse.
The regional nature of these price declines tells an important story about housing market dynamics. While West Coast markets that saw the most dramatic pandemic-era gains are now giving some of that back, other regions remain stable or continue modest growth. For buyers who felt priced out of markets like California, Oregon, and Washington, this correction creates opportunities that didn't exist even six months ago.
The key is understanding that success in these shifting markets requires focusing on total monthly payment costs rather than just purchase prices, since sellers in softening areas are increasingly willing to offer closing cost credits, rate buydowns, and other concessions that directly improve affordability.
Meanwhile, Congress is actively debating changes to capital gains tax rules that could unlock a significant wave of housing inventory while saving sellers thousands of dollars. Current law allows single filers to exclude up to $250,000 in capital gains from home sales, with married couples able to exclude up to $500,000, but these limits haven't been adjusted for inflation since they were established. Three separate legislative proposals are circulating that would either raise these limits substantially, index them to inflation going forward, or eliminate the capital gains tax on primary residence sales entirely.
Redfin analysts and housing economists note that any of these changes could dramatically reshape seller behavior, particularly in high-appreciation markets where longtime homeowners have been reluctant to sell due to substantial tax consequences.
The potential impact of capital gains reform extends far beyond individual tax savings. Many housing markets, especially in expensive coastal areas, have artificial inventory constraints because owners are "locked in" by the prospect of massive tax bills if they sell homes that have appreciated well beyond the current exclusion limits.
A policy change that reduces or eliminates these tax consequences could trigger a meaningful increase in listings, providing relief to inventory-starved markets while giving current homeowners the freedom to downsize, relocate, or upgrade without facing prohibitive costs. This could be particularly significant for older homeowners who want to move closer to family or reduce their housing expenses but currently can't afford the tax implications of selling.
The third piece of this potentially transformative puzzle involves Federal Reserve policy, where Chair Jerome Powell's recent Jackson Hole speech opened the door to interest rate cuts by acknowledging that "the balance of risks has shifted" toward supporting economic growth. Markets immediately responded to his comments, with bond prices rallying and futures trading showing an 87% probability of a 0.25 percentage point cut in September according to the CME FedWatch tool. While Fed policy rates don't directly determine mortgage rates, lower federal funds rates typically create conditions that can pull borrowing costs down over time, potentially making homeownership more affordable for buyers who've been waiting on the sidelines.
For current shoppers, this creates strategic timing decisions about whether to lock in today's rates or risk waiting for potential improvements, but the overall trajectory appears more favorable than it has been in months.
Sources: National Association of Realtors housing statistics, Congressional tax policy proposals, Redfin market analysis, Federal Reserve Jackson Hole economic symposium, CME Group FedWatch interest rate futures data