LadderScore Explained: How We Rate 900+ Markets

By the Numbers

We get asked constantly: How does LadderScore work?This week, we're pulling back the curtain — not on the proprietary weights (those stay locked up), but on the methodology, the factor categories, and the philosophy behind the score. If you're going to use LadderScore to guide your investment decisions, you deserve to understand what it's measuring and why.

The Five Factor Categories

Every market's LadderScore is built from five broad categories, each capturing a different dimension of investment potential:

1. Economic Fundamentals — Employment growth, unemployment rate, median household income, income growth trajectory, job diversification index, and labor force participation. These tell us whether the local economy can sustain demand for housing over the next 5-10 years.

2. Affordability— Price-to-income ratio, rent-to-price ratio (the “1% rule” metric), median home price relative to national benchmarks, and mortgage payment as a share of local income. This is where cash flow potential lives. Markets with strong affordability scores tend to generate positive cash flow from day one.

3. Market Dynamics — FHFA home price appreciation (1-year and 5-year), rent growth trajectory, days on market, inventory levels, and price-cut frequency. These indicators reveal whether a market is heating up, cooling down, or stable.

4. Scale — Population size, population growth rate, number of rental households, building permit activity relative to existing stock, and urbanization level. Scale matters because larger markets tend to be more liquid — easier to buy, easier to sell, easier to find tenants.

5. Risk— Natural disaster exposure, insurance cost trends, property tax burden, landlord-friendliness of state and local laws, crime rate trends, and vacancy rate. This is the category that most amateur market analyses skip — and it's often the one that makes or breaks a deal.

Important:The specific weights assigned to each factor — and the interaction effects between them — are proprietary. This is our secret sauce. What we can tell you is that the weights are not guessed or assumed. They're derived from regression analysis against actual historical outcomes.

Backtesting and Forecasting

The LadderScore isn't just a snapshot — it's a forecast. We calibrate our factor weights by running them against historical ZHVI (Zillow Home Value Index) appreciation data to see which combinations of factors best predicted actual market performance. This backtesting process is what separates a data-driven score from a subjective ranking.

Our LadderScore12 (LS12)is a 12-month forward-looking projection of each market's score. It uses the same factor framework but incorporates trend data — are fundamentals improving or deteriorating? A market with a current LadderScore of 60 and an LS12 of 55 is on a downward trajectory. A market scoring 55 with an LS12 of 62 is on the way up. The direction matters as much as the number.

Current Score Distribution

Across all 900+ scored markets, here's how the tiers break down:

The distribution tells a story: only 11 markets (2.1%) earn a “Healthy” rating, and just 3 fall into “Risk.” The vast majority — 56.8% — sit in the “Stable” tier. This reflects our deliberately conservative scoring. We'd rather under-promise and over-deliver than give investors false confidence in a market that's actually on shaky ground.

What Makes a Market Score High?

After extensive optimization and backtesting, three factors consistently emerge as the strongest predictors of market performance:

1. Supply constraints.Markets with low building permit activity relative to existing housing stock tend to outperform. When supply is limited, prices and rents have structural support. The Midwest dominates our rankings partly because many of these markets simply aren't building much new housing — there's no wave of new supply to dilute landlord pricing power.

2. Neighborhood quality indicators. School district rankings, crime rate trends, and median income levels within the metro area all contribute significantly. Markets where neighborhood quality is stable or improving tend to attract and retain renters, reducing turnover costs and vacancy risk. This is why we analyze sub-metro-level data, not just headline city statistics.

3. Employment concentration and diversification. Markets with a healthy mix of industries — healthcare, education, government, manufacturing, and services — weather economic downturns better than single-industry towns. A market dominated by one employer or sector might look great during boom times but collapses when that sector contracts. Our algorithm rewards diversification heavily.

The pattern:The highest-scoring markets tend to be mid-sized Midwest metros with affordable housing, constrained supply, diversified economies, and stable populations. They're not glamorous. They don't make headlines. And that's exactly why the returns are still there.

Market of the Week: Tazewell County, IL

Tazewell County sits at the top of our rankings with a LadderScore of 71 — the highest of any market in our database. Adjacent to Peoria (which scores 70), Tazewell benefits from the same economic fundamentals while adding its own advantages: slightly lower property taxes, a strong cash flow profile with a score of 88/100, and a price-to-income ratio that makes properties accessible to middle-income renters.

Why it tops the list:Tazewell checks nearly every box our algorithm rewards. Supply is constrained — building permits are minimal relative to existing stock. The economy is diversified across healthcare (OSF HealthCare, UnityPoint), manufacturing (Caterpillar's broader Peoria presence), agriculture, and logistics. Unemployment is below the national average. And the rent-to-price ratio supports strong monthly cash flow without requiring aggressive rent assumptions.

The honest caveat: Tazewell County is small. The metro population is modest, which means fewer transactions, less liquidity, and potentially longer holding periods if you need to sell. For investors who are comfortable with buy-and-hold in a smaller market, the numbers are excellent. For investors who need the option to exit quickly, the limited liquidity is a real consideration.

Our take:Tazewell County represents what LadderScore is designed to surface: markets with fundamentals so strong that most investors overlook them because they've never heard of the place. You don't need a famous market to make money in real estate. You need a market where the math works. In Tazewell, it does.

Look up any market's LadderScore →

One Actionable Step This Week

Look up your target market's LadderScore on our Market Rankings page. Go to the Market Rankings page, search for the market you're considering, and see where it falls. Check both the current LadderScore and the LS12 forecast. If the score is below 45 (Cautious), take a hard look at why before you deploy capital.

If you don't have a target market yet, start with the top 20. Sort by LadderScore, filter for your preferred population size, and read the one-page market summary for each. In 30 minutes, you'll have a shortlist of 3-5 markets worth deeper analysis. That's 30 minutes that could save you from investing in a market that's heading in the wrong direction.

Data sourced from Freddie Mac PMMS, Zillow ZHVI/ZORI, Redfin, FHFA HPI, Census Bureau, BLS, and 20+ additional sources. LadderScore methodology: proprietary 50+ factor algorithm backtested against actual ZHVI appreciation data.
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