Guest: Mark Zandi, Chief Economist at Moody's Analytics
Affordability Is Now Structural, Not Cyclical
My second holiday special guest this week, and last podcast for 2025, is Mark Zandi, Chief Economist at Moody’s Analytics.
Zandi’s core point in our conversation, is that the affordability squeeze being experienced in America today, feels “long in the making” and, crucially, newly reactivated by policy choices that are pushing price pressures higher again.
He frames it as a return of inflation to the center of household anxiety, not because consumers have become melodramatic, but because the things rising are the things people notice and cannot avoid.
Groceries are “trigger” prices because they are purchased frequently and signal, viscerally, whether life is getting easier or harder. Electricity has become newly salient because demand tied to AI and data centers is changing the underlying load story.
Housing, especially for anyone in California and other high-cost states, never really stopped being a constraint, but pandemic-era jumps in rents and home values turned a chronic problem into a broad political and consumer one.
Health care adds another layer, as policy around Affordable Care Act subsidies changes the forward path for premiums. Childcare and elder care complete the picture - necessities whose pricing power is amplified by scarcity and labor dynamics.
What makes Zandi’s framing useful for real estate professionals is that it refuses the comforting idea that this is “cyclical noise.” His contention is that many affordability drivers are idiosyncratic to each category, and therefore resistant to a single clean policy fix.
Housing supply is the obvious example: even if solutions are identified, the resolution timeline is measured in years, not quarters. The underwriting implication is less about speed and more about durability.
Zandi’s point aligns with what seasoned CRE investors already assume: affordability pressures are not transient, supply responses are slow, and the constraints facing households are likely to shape demand, pricing, and policy for an extended period.
The question is not whether these pressures fade quickly, but how long they remain binding and in what form they ultimately express themselves across property types.
The K-shaped economy - demand depends on a narrow cohort
Zandi describes an economy in which the top of the income distribution is still spending, and therefore still keeping aggregate activity afloat. The detail that matters is not the label “K-shaped” itself, but the mechanics: for households in the top tranche, wages are rising faster than inflation, debt service is manageable, and many locked in low fixed-rate mortgages during the pandemic. Additionally, they benefit disproportionately from equity-market gains.
In the middle, the tone is less comfortable - perhaps stable, but anxious. And at the bottom, necessities consume more of the budget, asset ownership is thin, and debt burdens are heavier.
One statistic he offers is the kind that should make any investor pause because it helps explains why the macro data can look fine even when sentiment looks bad: the top 10% of earners account for “almost half of the spending.”
That is both a stabilizer and a vulnerability. It stabilizes because high-income consumption can keep the machine running. It is a vulnerability because it concentrates macro risk in a single group’s confidence, portfolio values, and willingness to spend.
For CRE professionals and investors, this is not abstract sociology - it is tenant sales, household formation, rent tolerance, and the political environment around regulation and taxation. A consumption engine powered by a narrow segment is inherently fragile. If equity markets wobble, discretionary spending among higher-income households tightens, while the bottom two-thirds are already constrained.
The result is not an immediate collapse in headline GDP, but sharper, faster adjustments at the property level - reflected in leasing velocity, tenant expansion decisions, and retailer site selection long before aggregate data turns.
Asset prices are doing the heavy lifting - and AI is central
Zandi’s recession scenario begins where many investors are already uneasy: equity valuations, especially in AI-linked names.
He points to the scale of wealth creation in public markets over the past year and the concentrated ownership of those gains. Then he raises the uncomfortable possibility: it is plausible that investors are correct that AI is transformative, but wrong about how quickly it diffuses into real workflows and productivity.
Historically, even genuine game changing technologies can take time to spread, and existing legacy firms often struggle to implement them. That matters because it is not necessary for AI to ‘fail’ for markets to correct. It only needs to under-deliver relative to very optimistic expectations. If the market reprices, it is not merely an equity story - it becomes a consumption story, because consumption is increasingly dependent on the cohort most exposed to equities.
From a CRE lens, this is where second-order effects become first-order. A valuation reset can tighten corporate spending, hiring, and capex. That ripples into absorption for office and flex, into household confidence for big-ticket consumption, and into the risk appetite of those equity allocators and retail investors who fund private real estate.
The debt wrinkle - why this cycle could bite harder
Zandi draws a sharp contrast with the dot-com era. Then, he argues, the episode was more equity-driven than debt-driven, which is why the equity crash hurt but did not crush the economy.
This time, he flags the direction of travel: tech companies issuing substantial debt to finance buildouts. His caution is calibrated - he does not call it systemic – yet. But he warns that the latter months of 2025 show extraordinary issuance and increasing financial engineering.
The concern is not merely the amount, but dispersion, opacity, and creativity - the ingredients that historically turn localized problems into broader ones.
For real estate professionals, the parallel is familiar. Leverage itself is not the villain. Leverage combined with optimistic growth assumptions, opaque structures, and a sudden shift in cash flows is where benign becomes malignant.
This is exactly the right way to think about AI-related real estate demand too - data center fundamentals can be strong while capital structures quietly become the weak link.
Deglobalization and “exorbitant privilege” - the longer arc
Zandi also ties today’s macro risks to a structural shift in the global order. He describes the post-World War II through late-Obama era as a period of rapid globalization, net-positive for the global economy and broadly beneficial to US consumers, even with clear losers in US manufacturing.
He then argues that the break from that trajectory - via trade policy shifts, tariffs, restrictive immigration policy, sanctions, export controls, investment restrictions, and fraying alliances - is pulling the US away from the role of central “safe haven” and global gravity point.
For CRE audiences, the relevance is not ideological - it is capital flows, cost of capital, and the durability of the dollar-financed system that underpins so much of global investment behavior. If the US safe haven status is even modestly diminished at the margin, the discount rate story for risk assets can change.
Positioning for 2026 - stay sober, stay humble
Zandi’s closing advice is almost deliberately unexciting: most investors should stay the course, align investments with risk profile and time horizon, and remember that the American economy has historically been resilient over long periods.
That message is not a license for complacency. It is a reminder that the hardest investing mistakes are usually made when people confuse macro unease with tactical certainty.
His framework pushes CRE decision-makers toward three disciplines:
(1) underwrite affordability pressure as structural, not temporary,
(2) treat equity-market sentiment and AI valuation risk as a real macro transmission channel, and
(3) watch leverage and financial engineering with the same skepticism you would apply to a stretched bridge loan.
If the next downturn arrives, it is unlikely to announce itself politely. It will come through the plumbing first.
Concluding Thoughts
What makes this conversation with Zandi particularly relevant for commercial real estate professionals is not that it predicts a specific outcome, but that it clarifies the fault lines along which outcomes are most likely to emerge.
Affordability pressures are entrenched, not episodic. Demand is increasingly concentrated in a narrow cohort. Asset prices, especially those tied to AI, are doing an outsized amount of macro work.
And leverage, while not yet destabilizing, is re-entering the system in more complex and less transparent forms.
None of this implies imminent crisis. But it does argue against complacency. In an environment where headline growth can remain positive while underlying conditions deteriorate unevenly, the signals that matter most to real estate will show up first at the property and tenant level - leasing velocity, renewal behavior, expansion decisions, capital availability, and lender posture - not in GDP prints or aggregate employment data.
Zandi’s message ultimately reinforces a discipline CRE professionals already understand: cycles turn through structure, not sentiment. The next phase, whenever it arrives, is likely to be shaped less by a single shock than by the interaction of affordability constraints, asset-market repricing, and leverage dynamics working their way through the system.
Those underwriting with durability in mind, rather than speed, will be best positioned to navigate it.
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If you would like to contribute to this conversation, I have published some abbreviated commentary on LinkedIn.
Access that post on LinkedIn here.
And click here to listen to or watch the episode.
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Today's conversation with Mark Zandi and this newsletter are the last of the year this year. I am heading into a two week burst of energy to finish writing a new book I've been working on for some time.
Have a Happy Holiday and see you in 2026.
Adam