Demand and prices for luxury homes are rising faster than for middle-market houses — which still feel increasingly out of reach to most people.

Why it matters: This is the K-shaped economy in action, a thriving upper class and everyone else stagnating or falling.

• The rising stock market and AI boom are driving a lot of this.

By the numbers: The median U.S. luxury home sale price rose 3.6%, to $1.39 million, in the three-month period ending April 30, per new Redfin data.

• That's double the increase for non-luxury homes, which gained just 1.4% to $377,734. Redfin defines "luxury" as homes priced in the top 5% of a given metro area.

The latest: Overall demand in the housing market is slumping. Home prices grew just 0.7% in March, per the latest report from Case-Shiller, and more than half of major U.S. metro areas posted outright declines in prices.

• That would be sort of good news for interested non-luxury homebuyers — who have been turned off by what are still very high home prices. But many are staying on the sidelines amid rising mortgage rates and inflation, on top of job market concerns.

The big picture: When economic times become uncertain, most homebuyers, particularly first-timers, shy away from making what would likely be the biggest purchase of their lifetime.

• "When things are changing really quickly, first-time homebuyers get nervous," says Daryl Fairweather, chief economist at Redfin. Wealthy people have more economic confidence: "They kind of still go for it."

Flashback: The other moments when the luxury market saw more demand were in 2021, when there was still COVID-driven uncertainty, and 2023, when very high mortgage rates, inflation and recession fears gripped the country.

State of play: Homebuilder Toll Brothers, which builds high-end homes, talked about the situation in its most recent call with investors earlier this month.

• "In this environment, we are pleased to be serving a more affluent customer base, a segment of the housing market that has proven more resilient despite the challenges facing the broader market," said Doug Yearley, the company's executive chairman.
• "Overall, our buyers are less sensitive to affordability pressures as they have benefited from years of income growth, stock market gains, and home equity appreciation."

Case in point: San Francisco is the epicenter of the luxury market, posting a 48% year-over-year increase in pending luxury home sales in April.

• That's the largest increase since June 2021, per Redfin. The median luxury sale price in the city was $6.7 million — up nearly 10% from last year.

Follow the money: Real estate agents in the city say it's "AI money," Fairweather notes. That's spending by people whose stock compensation has risen, along with company valuations — and AI companies are doing a lot of hiring and doling out fat sign-on bonuses.

Yes, but: Other agents in the city say the price run-up is a correction after years of slow sales, the San Francisco Standard reports.

• Other cities seeing a big run-up in pending luxury sales: Tampa (up 36%), West Palm Beach (16%), Miami (15%).

Zoom out: Elsewhere in the country, the booming stock market has been a big driver of demand at the high end. Affluent buyers aren't as sensitive to high mortgage rates — many can afford to pay all cash.

• Markets are seeing an unusually high number of all-cash purchases, says Jonathan Miller, the president of Miller Samuel Real Estate Appraisers and Consultants, which tracks residential housing around the country.
• Manhattan has always seen a high share of all-cash buyers, but last year saw the most ever, per a report Miller put out earlier this year.

Where it stands: High mortgage rates have hammered the housing market for years now, but at the start of 2026, rates started falling.

• The average rate on the 30-year mortgage briefly dipped below 6% in late February. The U.S. and Israel attacked Iran just days later.
• The resulting energy price shock has driven up borrowing costs. The average rate on the 30-year mortgage was 6.61% yesterday, per Mortgage News Daily.

The bottom line: Rich people are driving up demand for fancy houses while others take a backseat amid rising economic uncertainty.

Stocks are offering pretty skimpy returns when stacked up against government bonds — at least according to one key Wall Street metric.

Why it matters: The current low level of what's known as the "equity risk premium" suggests that the stock market might not be the best place to put cash to work right now.

How it works: The equity risk premium compares yields on bonds with the potential return on stocks, using something called the "earnings yield" on the S&P 500.

• Earnings yield recasts the stock market as a kind of bond, with the S&P 500's expected earnings per share over the next year against the index's current price as the "yield."

By the numbers: The earnings yield on the S&P 500 was 4.70% on Tuesday, when the yield on the 10-year Treasury note was 4.49%.

• So the premium — the additional return stocks offer investors compared with safe government bonds — is now about 0.21 percentage points.
• That's not a whole heck of a lot, historically speaking.

Yes, but: To be fair, the stock market looks unattractive, in part, because it has done quite well this year, with the S&P up nearly 10% so far. (Higher prices push earnings yields lower, all else equal.)

• Meanwhile, yields on Treasury bonds are up, in part, because the price of Treasuries has been falling. (Bond yields and prices move inversely.)
• In fact, stocks have been a much better bet than bonds so far in 2026, with the total return on Treasury bonds this year a negative 0.8%, according to Bloomberg Index data.

Go deeper: The Wall Street Journal published a nice piece on the equity risk premium Monday.