It does look pleasant. Approximately where are you located? Climate is really relevant for this.

I've always preferred patios to decks and wonder why you think you might use a deck when you don't like your patio. Do you need privacy?

We are in the Northeast. The back of the house is a bit sunken below the back lawn and we would like some more shade and structure.

I am just the opposite I like decks better than patios and IMO you have lots of space for a huge deck . We have 2000 sq ft of deck , no gras and a pool . We do have some yard which had grass which never was really healthy so we did perennial beds and gravel it is great we have fire pit sitting on the gravel with nice chirs around it no issue with sparks. The deck holds seating for 8 and more room if we need , an outdoor kitchen and a huge dining space where we can seat 20 if needed. Then deck all around the pool. Your yard looks very well suited to deck across the back where the patio is and around the corner where you have the dirt patch now . So a nice big wraparound deck for seating, BBQ and dining.

I like a good combo of deck and patio. We have both and use both. You have tons of space

It is hard to tell but there is a stone wall along the edge of the lawn above the patio: there is a very narrow path that makes the space awkward. I don’t know how a deck would work there

Spend some effort to figure out why you don't use the patio. Then fix that issue.

Cape Cod, here.

Gravel: it will allow you to build up the terrain. You can leave as is or add pavers. Do a pea stone that is larger than the grooves of sneaker soles.

My daughter's Cape Cod cottage. Lots of plants, some grass, but driveway and entrance are all stone. Pavers for the walk way.

great idea thanks

I would think about how you could use more of the yard. Outdoor cooking? Lounging: maybe reading or socializing? Eating space? Any particular outdoor friendly sport or game (bocce ball, cornhole, etc)? Then you can build an outdoor "room" to serve that purpose. Knowing how you'll use the space can help determine the right surface (patio, deck, sand, grass). Consider how you can make the space feel welcoming. This might include privacy from neighbors, shelter from the elements (sun or rain), or just the feeling of shelter (pergola or plantings can provide this).

we would like a table for sitting and having coffee / reading the newspaper, light meals, shade. I do grill in warm weather. We would like some shade.

I would try a small deck just where the stone is…and cover it with a pergola…which can be covered with shade cloth in the summer for partial shade….. so it will be comfortable to be out on sunny days ….
In the winter …the pergola can be left uncovered …. to let the sun and light in…
If this works well and you want to expand the space…a few steps up to the tree level ….a separate …bigger deck …could be built to surround the tree..for a nice (big?)naturally shady spot for outdoor living ….
This would require an experienced builder to be sure the root system of the tree is not disturbed in construction…a challenge …but a lovely space when done properly…certain times of the day full sun will be available..but on a hot day the tree will provide the needed shade.
One thing that really enhances the deck enjoyment is big pots for annuals/colorful flowers during the summer …even evergreens in the winter…to add a little life and warmth to the wood expanse
Lastly …..use redwood if possible…it can cost a lot more ….but relieves you of the chore of painting/ peeling/ rotting… over time…as it requires less or no upkeep…if not available ask questions locally about which local wood will fare best

One added feature that is my lifetime ..favorite …outdoor experience…a hammock!…lovely for naps,reading,resting when you need a break from gardening…can be over a deck or just a pea gravel circle between the trees…

Now that I see additional photos I would remove some of the area behind the little raised part and move that all back making a larger patio and walkway. Then you can tier it nicely and improve plantings too. On the patio I would have an area for grilling and eating and one for relaxing and sitting

I would be cautious of endangering that big tree’s root system

Your outdoor space should have easy access to the house, and the only door I noticed was by the patio. What went wrong there? Too sunny or shady? Having really comfy furniture is very important. And if you are grilling, you need to be close to the kitchen.

it's too sunny

Search Houzz photos…for pictures of “pergolas”…..for ideas on creating a versatile..seasonal ..shade options

The main problem is that there are no trees or other sources of shade over the patio. Maybe you could look into the various options, such as canvas sails, or a more permanent structure. That seems like it could be a really nice area with shade and then some additional plantings or pots.

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I grew up in New England, so I love your land and your patio with its stone walls. Long-term, I'd plant a sugar maple or two, strategically placed to provide summer shade. Short-term, maybe a lightly-framed pergola with shade cloth panels that accordion-fold closed and slide open on tracks to provide the degree of shade needed (as others have suggested as well)? Something like this? The center gabled section could be as open or closed above as you wish. I did cut steps into the stone wall for access to the upper level, where there could be other seating options as well.

People gravitate to outdoor areas where there is a sense of enclosure and protection. For example, chairs with the back to a wall, or under an umbrella or overhead canopy. To me it looks like your space is too open to be inviting. Your "fix" might be as simple as a large umbrella, either coming out of a table for dining, or an offset umbrella over a seating area.

You could also let your clipped shrubs grow taller, and continue with some tall plantings along the top of the wall.

More just got it! :-))

Here are my low-cost options: Patio umbrellas and shade sails are affordable and effective. If you can't afford a pergola right now, invest in an umbrella (or two). I'm a big fan of large pots filled with small shrubs, herbs or flowers to liven up the patio. I'd also clean up the ledge of the retaining wall and either use it for seating or for pots of flowers. An inexpensive cafe table for coffee of cocktails would be inviting. And a comfy chaise or hammock would be great for afternoon naps.

My backyard looks like this.