Monthly Newsletter – 01/30/2026

Last week, my office had the pleasure of hosting esteemed economist Matthew Gardner, who presented his Economic and Housing Market Forecast for 2026. He looked at the national and local (King & Snohomish counties) economies and housing markets and shared his insights. This included a look back at 2025 and a gathering of facts, trends, and indicators that will set the stage for influencing financial decisions in 2026, specifically surrounding housing.

US Economy
The combination of consumer confidence and consumer sentiment, inflation, and consumer spending gives us a good picture of where our economy is and where it is heading. Consumer confidence is a bit lower due to uncertainty surrounding the effect of tariffs, immigration, interest rates, and affordability. However, consumer sentiment has improved, and we are still seeing an increase in spending. Inflation has tempered from post-pandemic highs and has settled at 2.6% year-over-year for core inflation, which excludes food and energy. When you add that back in, it is up 2.7%. This is a vast improvement from the 6-9% rates we were seeing coming out of the pandemic years.

This has caused the Fed to continue to lower the Federal Funds Rate (short-term), which currently sits at 3.64%, and he anticipates further cuts in the late spring and possibly another later in the year, resulting in a rate closer to 3%. This is due to two conflicting figures: employment rates and inflation rates. Employment rates are slightly down, and inflation is slightly up; lowering the rate is intended to help stimulate spending to support economic growth.

The job market has softened due to employers being more cautious about creating more jobs and instead asking for more productivity out of their current employees. Layoffs slightly increased in 2025, but employee quits have decreased, resulting in a 4.3% unemployment rate and a 1% increase in job openings. The labor force (number of available workers) is not growing due to immigration, yet H2A and H2B visas are filling manual labor and hospitality jobs to keep business effectively running.

Tax cuts will also be felt in 2026, with more money being left in workers’ hands; whether they will save it or spend it remains to be seen. With all of this said, there is no sign of a recession, which is supported by a 2% increase in Gross Domestic Product (GDP). The definition of a recession is two consecutive quarters of negative GDP growth. We simply have not seen that, nor do we anticipate it, albeit we are overdue for a recession cycle based on historical trends.

Local Economy
The Greater Seattle employment picture varies from King County to Snohomish County. There were 16,100 fewer jobs in King County in 2025 year-over-year, and a 4.3% unemployment rate. In Snohomish County, there were 2,500 jobs added in 2025 and an unemployment rate of 4.5%. For 2026, he anticipates modest growth with 1% more jobs created in King County and Alaska Airlines’ recent large order at Boeing will stimulate job growth in the area, along with healthcare and education. Meta cut-backs could be counterbalanced by Amazon’s new expansion on the Eastside.

The Greater Seattle area is heavily populated with a smart, talented workforce that is starting to navigate the effects of AI technology replacing jobs. This is more prevalent at the entry-level, and for AI replacement to really take hold will require infrastructure growth on the power grid, which will take many years and a large financial investment. It is certainly something to be paying attention to, and remaining nimble and attractive to employers will be a key factor. Attracting companies to come to or remain in the area is paramount, and tax policy will heavily influence this.

Population growth in our area is tapering in King County and is up slightly in Snohomish County. Birth rates are down, in-state migration is slowing, but international migration remains strong. HB1 work visas create this positive movement, especially in the high-tech job sector.

Interest Rates
Interest rates are down year-over-year and have hovered in the low 6% range as of late, and he predicts they will gradually recede throughout 2026, outside of any big changes by the administration or increased activity with the bond market. The two factors that rates influence are affordability and the downward pressure they put on inventory.

74% of homeowners in our region have a mortgage rate at or below 5%, and 24% are at or below 3%. This has caused many homeowners who would like to move to stay where they are, as they do not want to give up their lower monthly payment. We call this the “lock-in effect,” which limits selection. This has helped maintain home values and caused prices to remain flat and not fall. However, he sees 2026 as the year that some will rip off the band-aid and choose to align their housing with life changes over the lower payment. If this is coupled with rates lowering, it could be a win-win for buyers and sellers alike.

Local Housing Market
In 2025, King and Snohomish counties saw fewer sales, higher rents, and stable prices. He anticipates a 5% increase in sales due to receding rates and some homeowners moving away from their lower rate to gain the home that best fits their current life needs. After a 120% increase in home prices over the last decade, he predicts prices to grow in 2026 by 2-3% year-over-year. This is below the 35-year historical average of 4-5%, shedding light on perspective after the massive ramp-up in prices during the pandemic.

A highlight of this trend is that many more home sellers are starting to price their homes closer to what the market will bear. It has taken some time for consumers to balance their expectations against the realities of a more normalized market. From the frontlines, I can attest that well-prepared and appropriately priced homes are moving more quickly and are even seeing multiple offers. The nuance, strategy, and staying close to the data matter. And of course, who you hire has become even more important to gain optimal results.

The condo market continues to see higher inventory levels and softening of prices. This is most affected by location, the health of the homeowners’ associations, and monthly dues. However, the number of new condo builds is receding, which will bolster well-managed resale condos. New builds for single-family homes have also been limited due to the WA State Urban Growth Areas (UGA) running out of available land for additional units. It is unlikely that those boundaries will expand anytime soon, which resulted in the middle housing zone changes created by HB 1110. The intent is to create more housing units, higher density, and more affordable housing.

Affordability is our biggest challenge as prices in our area are high, and rates are no longer historically low. It all boils down to the monthly payment and how that is supported by wages. In 2025, the average age of a first-time buyer was 40, illustrating the need to build income and savings. Liquidating stock accounts and generational gifting have been a solution for some buyers in our area. The affordability challenge does not seem to be vastly improving, so jumping on an opportunity to buy with increasing rents and moderate price growth should be paid close attention to. There is no bubble in sight, and rates will slowly fall, so playing with the cards currently available in the deck is key if you can.

If you would like a copy of Matthew’s slides or the link to his presentation, please shoot me an email, and I will get it to you. In the meantime, and throughout 2026, you can count on me to continue to share the latest data, trends, and frontline experiences. It is always my goal to educate and immerse myself in the market to provide my clients with the most up-to-date information to empower them to make strong financial decisions.