INSIGHTS

On July 14, 2025

AAM Viewpoints — Woah, We're Halfway There....

Highlights

• Consumers seem concerned
• No housing recovery
• Inflation not increasing…yet
• Labor holding for now
• Commercial Real Estate (CRE) reflects broader economy

It's summertime which pretty much means our ‘80s Greatest Hits playlist is now on repeat. And since a little Bon Jovi reference in the Viewpoints never hurts, here we are rock ‘n’ rolling at the halfway point of the year.

Despite the numerous challenges that the economy has faced, it has remained resilient. Growth has slowed (even technically contracting in the first quarter) but the expansion continued with job growth remaining positive. And the stock market has rebounded to all-time highs. Yet we know the main impact from increased tariffs is likely ahead. We still have data from the first half of the year to analyze before we can fully turn our attention to the second half. Let’s get some of that wrapped up, think through the implications for commercial real estate and then think about how that starts to set up the latter half of the year.

Consumer Cooling?

Consumers have been the driving force of the U.S. economy this cycle, as during most cycles. But are they finally cooling off? Personal income and spending both declined during May, coming in worse than anticipated. The decline in spending occurred largely due to a pullback in auto sales after an earlier surge that got ahead of tariffs. The personal consumption expenditures (PCE) price index came in as anticipated on a headline basis. But the core index — the Federal Reserve’s preferred index — came in a bit above expected on both a monthly and annual basis, pushing inflation away from the Fed’s target rate.

Consumer confidence slipped again in June, as households grew more pessimistic about job prospects. Continued jobless claims rose to their highest level since November 2021, signaling that unemployed workers are having a harder time finding employment. On a more positive note, the consumer sentiment index was revised up in June, breaking a six-month losing streak. Yet, the index remains stuck at levels historically associated with recessions.

Housing Hurting?

Housing also took center stage. Existing home sales edged up in May but seem unlikely to gain much traction in future periods. Pending home sales suggests a flat read on existing sales for June, with affordability still proving a challenge. In the new home market, unsold inventory continued to climb — particularly the supply of completed homes, now at its highest level since 2009. All of this suggests that housing prices could grow more slowly, even contracting in certain parts of the country. But overall, the market will remain challenging for many buyers.

CRE Implications

Thus far, through the second quarter, data shows an economy that is slowing down and adjusting to changes in trade policy. While we haven’t seen much impact on inflation yet, the next couple of quarters should prove telling. Meanwhile, many other economic indicators, including trade and consumer spending, have already shifted. The impact on the CRE market remains a bit unclear at this stage. While we have certainly seen some signs of slowing, such as longer due diligence periods, others remain a bit too early to tell. For example, some data sources have noted an impact on pricing during May. But June and the quarter just ended so we will reserve judgment until we see the finalized data. For now, the CRE market’s behavior seems in line with the broader economy’s — thus far enduring, but the next few quarters will prove paramount.

CRN: 2025-0710-12713 R

Statements in this document that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs and are subject to change. Such statements are subject to known and unknown risks, uncertainties and other factors. Moreover, this document contains statements, estimates and projections as well as certain forward-looking statements, which can be identified by the use of forward-looking terminology such as “may”, “will”, “would”, “should”, “expect”, “project”, “intend”, “target” or “believe” or the negatives thereof or other variations thereon or comparable terminology (together, the “Projections”). Economic outcomes may differ materially from those reflected in or contemplated by such forward-looking statements, and undue reliance should not be placed thereon.  The market analysis presented in this document represents the subjective views of BGO.