Moody's Analytics chief economist Mark Zandi warned that the U.S. economy is flashing caution signals despite expanding at roughly 2%, driven by business investment and artificial intelligence spending. In a post on X on Sunday, Zandi stated that recent economic data does not indicate an immediate downturn but raises concerns about underlying weaknesses, particularly regarding consumer finances.

Zandi noted that real GDP is still growing at a 2% annual pace, supported by AI-related investment and corporate tax cuts that are boosting business activity. However, he pointed out that consumer fundamentals are deteriorating. "Consumers struggle to maintain their spending," Zandi said, attributing this to declining real disposable income and a historically low savings rate.

The economist emphasized that real disposable income, which he described as the "fodder for future spending," is falling—a phenomenon he noted rarely occurs outside of recessions. This shrinking financial cushion for households poses a risk given that consumers account for more than two-thirds of U.S. GDP, whereas business investment represents less than one-seventh.

Key Economic Indicators

Zandi's assessment contrasts with other recent market commentary. Jeremy Grantham previously warned that U.S. stock valuations had reached record highs, with the Buffett Indicator at about 235% of GDP, signaling extreme market overvaluation. Additionally, U.S. economic growth had slowed sharply to 0.5% in late 2025, with weak investment and persistent inflation pressuring households.

Looking ahead, Anthony Scaramucci suggested that AI could significantly boost long-term growth, potentially easing the U.S. debt burden if productivity gains outpace government spending. This outlook echoes the post-World War II economic expansion, offering a counterpoint to the current cautionary signals regarding consumer strength.

US housing affordability is unlikely to return to pre-2022 levels, even under favorable mortgage rate scenarios, according to a market commentator citing Morgan Stanley's latest outlook. The firm modeled mortgage rates at 4%, 5%, and 6%, finding that affordability remains elevated in each case. This persistent lack of affordability poses a significant challenge for prospective homebuyers, particularly first-time entrants to the market.

Morgan Stanley Sees Affordability Staying Elevated

In Morgan Stanley’s base case, mortgage rates are projected to ease toward 5%. However, mortgage payments would still consume approximately 21% of household income, significantly exceeding the historical average of around 15%. The bank forecasts that affordability gains will likely stall around 2027, noting that the lack of housing turnover has pushed the market to its slowest pace in roughly 40 years.

Factors Constraining Supply

Several structural factors are contributing to the sustained pressure on housing affordability. Approximately 70% of existing homeowners hold mortgages with rates below 5%, discouraging them from selling and keeping resale inventory constrained. This lock-in effect is exacerbated by higher long-term interest rates, restrictive land-use policies, slow permitting processes, and rising insurance costs linked to climate risk. Additionally, Millennials and Gen Z are competing for a limited housing supply, further driving up prices.

Impact on First-Time Buyers

The financial burden on new buyers has intensified. Financing a median-priced home now costs buyers about $2,000 a month, nearly double the monthly payment from five years ago. First-time buyers are increasingly taking on larger mortgage balances, with the average reaching $334,000 in 2024. As credit standards have tightened, these buyers are moving to lower-income ZIP codes in search of affordability. Consequently, homeownership has been declining since 2024, particularly among 35-to-44-year-olds, while the share of renters is gradually increasing despite rising rents.