The numbers behind the boom: Why some property markets are defying gravity

Inventory math: Months of supply tells the real story

One of the simplest ways to spot a market that can “defy gravity” is to track months of supply: active listings divided by monthly sales. When this figure stays low, prices can rise even if borrowing costs increase, because buyers are effectively competing for scarce stock rather than reacting to macro headlines.

Many resilient markets share the same pattern: new listings fail to replenish what sells, keeping supply structurally tight. Watch the direction of travel as much as the level. A market moving from 2.0 to 3.0 months is loosening even if it still feels competitive; a market stuck near 1–2 months for multiple quarters is sending a stronger signal that scarcity is dominating.

The lock-in effect: Why existing owners stop selling

Higher rates do not hit all households evenly. In markets where a large share of owners refinanced or bought at ultra-low fixed rates, a rise in mortgage costs creates a powerful lock-in effect: selling and buying again would mean swapping a cheap loan for an expensive one. That keeps would-be sellers in place and removes inventory from the market.

The numbers to watch are the share of mortgages below a given threshold (for example, under 4%), the local proportion of fixed-rate loans, and the spread between prevailing rates and the average outstanding rate. The wider that spread, the more “shadow supply” disappears. In practice, this can outweigh affordability deterioration for first-time buyers, because the pool of listings shrinks faster than demand.

Demand composition: Cash buyers and high-income households

Some markets keep moving because demand is less dependent on monthly payments. A higher share of cash buyers (or large down payments) makes the market less rate-elastic, while high-income buyer pools can absorb payment shocks without retreating.

Key indicators include cash transaction share, the distribution of down payments, and the local concentration of high-earning sectors. Where wealth effects are strong, think equity compensation, successful small business ownership, or long-tenured homeowners trading up with substantial equity, price discovery can remain surprisingly aggressive even when standard affordability metrics look stretched.

Also, pay attention to the investor mix. “Investor” is not one category: short-term speculators vanish first when rates rise, but long-horizon landlords in supply-constrained areas may continue buying if rent growth and scarcity support long-term returns.

Affordability isn’t one number: Ratios that matter most

Headline affordability often uses a generic payment-to-income ratio, but markets that resist downturns tend to have hidden buffers. The first is income stratification: the relevant “income” is not the median household income, but the income of the marginal buyer segment actually competing for homes in that area.

If renting is also tight and expensive, households may accept higher payments to secure stable housing, keeping demand resilient even when classic affordability screens suggest buyers should retreat.

Migration and jobs: The inflow that keeps bids high

Property markets are local, but they are also shaped by who arrives with purchasing power. Net in-migration of higher-income households can keep prices rising even if local wages lag, because the buyer pool is being refreshed from outside the region.

Track net migration, new household formation, and job growth in tradable sectors (technology, finance, energy, advanced manufacturing). A market can appear “overvalued” versus local income while still being rational for newcomers earning different wages or holding substantial home equity from more expensive regions.

Remote and hybrid work amplify this dynamic by decoupling wages from geography. When a city becomes a destination for remote workers, demand can jump faster than construction capacity can respond, producing sustained pressure on both rents and prices.

Construction constraints: When supply can’t scale

Defying gravity is easier when supply is structurally capped. Even if developers want to build, they may face limits in land availability, zoning, permitting timelines, labor shortages, financing costs, and infrastructure capacity.

The numbers behind this are measurable: permit issuance per 1,000 residents, completion-to-permit conversion, average entitlement timelines, and the share of projects canceled due to financing gaps. When financing costs rise, marginal projects die first, especially in markets reliant on construction loans, reducing future completions and reinforcing scarcity.

Markets with persistent underbuilding relative to household growth tend to develop a “floor” under prices, because each downturn starts from a baseline shortage rather than an oversupply.

Rent dynamics: The yield that supports valuations

In resilient markets, rent growth often provides a second engine. If rents rise faster than expected, investor underwriting improves, and owner-occupiers feel less able to “wait it out” in the rental market. The key is the relationship between rent growth, vacancy rates, and new supply.

Watch for low vacancy combined with limited multifamily completions: that mix can keep rents firm even when the broader economy slows. When rents hold up, price-to-rent ratios may stop looking as extreme, and cap rates can stabilize relative to bond yields. This does not eliminate risk, but it explains why some areas don’t see the rapid repricing that theory might predict.

Credit conditions and policy: The hidden levers

Interest rates are only one part of credit availability. Markets can stay hot when underwriting remains flexible for high-quality borrowers, when local banks continue to lend, or when policy settings favor demand. Examples include tax incentives, buyer subsidies, and regulatory environments that attract capital.

Key measures include mortgage approval rates, average credit scores of originated loans, debt-to-income distributions, and the health of local lenders. Another overlooked factor is the role of institutional allocation: if pensions, insurers, or funds target residential exposure as an inflation hedge, they can provide a steady bid that smooths volatility.

Finally, policy can constrain supply as much as it stimulates demand. When rent controls, heritage restrictions, or slow permitting reduce buildable stock, prices can remain elevated even in higher-rate regimes because the market is being managed by rules as much as by rates.