Matthew Gardner: Housing price growth will slow, but demand remains high

BELLEVUE, Wash. — On November 10th, 190 guests gathered in Bellevue Club’s banquet room for the 6th annual Get the Edge event hosted by the Young Professionals Network. Get the Edge provides an economic forecast for the coming year and the opportunity to hear market insights from industry peers.

Matthew Gardner was the event’s main speaker. Gardner, Windermere’s Chief Economist, surveyed the economic landscape and gave REALTORS® a comprehensive forecast for the coming year.

National and local economies recovering

October 2010 through February 2020 saw steady growth of new jobs (22 million). That same amount was lost in just two months during the COVID-19 pandemic. Despite still being short 4.2 million jobs, however, the job market is on a pathway to recovery – with a few bumps on the road.

  • Hiring remains an issue – specifically in the service sector. The primary obstacles are the Delta Variant and vacancies in the face-to-face industry, such as restaurants and hospitality where former employees aren’t returning to work. This disproportionately affects renters, who work in face-to-face industries in larger numbers. Nevertheless, companies are continuously seeking qualified workers and jobs in the face-to-face industry are slowly recovering. Over 48,000 jobs in leisure and hospitality have been recovered since the beginning of the pandemic.“Wages will rise to attract workers,” said Gardner. “Wages are up 12% for hospitality year-over-year, and we are also seeing that in bars and restaurants as well.”


  • Gardner anticipates a full job recovery nationwide by end of 2022. Good news: We are “recovering faster than the Great Recession” according to Gardner. He added that the Infrastructure Bill will provide a significant boost to the economy with more than $8.5 billion in dedicated funds to be granted to Washington state for highways, bridges, transportation, and more.
  • Our region’s diverse economy will allow for a faster recovery than the nation as a whole.
    “We lost a lot of jobs, but we are coming back,” said Gardner. “We are adding 7,000 to 9,000 jobs per month here and that is a good number.”A significant part of this recovery is the continuous gain in jobs on the Eastside due to tech companies – Amazon, Facebook, Microsoft, and Google – particularly in Bellevue and Redmond.

Slides reproduced with permission from Matthew Gardner, Windermere Real Estate

King County Housing Market

Single Family Existing Homes

  • When you have limited supply & net new demand, prices go up. That’s what is happening in King County and the Eastside. Anyone who bought a home in King County before 2012 has seen their home price double—the Eastside even more.

Slide reproduced with permission from Matthew Gardner, Windermere Real Estate

  • But prices can’t appreciate indefinitely. We aren’t seeing the necessary wage increases to service the debt. As a result, we will likely see median sale prices slow. But don’t worry, this isn’t 2005 and this isn’t a housing bubble. Prices are up because mortgage rates have dropped significantly: 8% in 2000, 4% now (price increase, adjusted for inflation, is at 89%; real payment, adjusted for inflation, is at 5%). The takeaway: the market doesn’t look bad.
  • Gardner anticipates that housing demand will be affected by the new COVID work landscape. Typically, home prices are more expensive closer to the job center and cheaper further away. But this looks to be changing. Work-from-home arrangements will create more demand in exurban and suburban markets. Renters in expensive urban centers will find that an exurban/suburban mortgage is much cheaper than urban rent. Even a worker with a hybrid schedule, spending two to three days at the office, will put up with a terrible commute for a few days a week for a bigger house. COVID, according to Gardner, will create the “resurrection of the suburbs”. However, it’s possible that a lot of employees are waiting to buy homes until they conclusively figure out what their work schedule will look like. The takeaway: Jobs won’t move, but workers without a commute just might.
  • As remote work becomes more common, dedicated Zoom spaces will become more attractive to potential buyers. Even now, open floor plans are increasingly being changed around with more room separation.
  • Millennials are a huge population (9 ½ million) that will become big players in the housing market. Agents and developers should anticipate housing demand from Millennials, which will look substantively different from previous generations: “If you know any developers who ask you ‘what should I build for millennials?’ they don’t care about full dining rooms–they love dog showers.”
  • Average price growth in King County is historically around 5%, and Gardner believes it will return to that. The reason is affordability–not for low-income housing but workforce housing. Nurses, incredibly important members of the workforce, do not have an income that supports a seven-figure home. The takeaway: If we want to keep the region competitive, we must house everyone.

Slide reproduced with permission from Matthew Gardner, Windermere Real Estate

Existing Multi-family Housing

  • Like single family homes, multi-family homes are in short supply, and the average prices have increased. As of October 2021, the average list price of a multi-family home is $740,000 in King County and even higher on the Eastside where a multi-family home sits at an average list price of $898,000.

Mortgage Rates

  • For conventional 30-year mortgages, rates by quarter will stair-step up through the end of 2021. However, they are likely to end up below 4% by next year. We should remember, however, that, “for every 1% increase in mortgage rates, buying power is decreased by 10%.” This will act as a headwind to home price growth and may get buyers off the fence, increasing demand. The takeaway: mortgage rates will remain favorable.
  • Homes in forbearance are down from 9% last year, landing just north of 1%. This is because all current homeowners in forbearance are holding on average almost $90,00 dollars of equity. If you bought a home before 2012, you’re holding an average equity of $100,000. If you bought a home after 2019, you’re holding an average equity of $65,000. Should we be worried about forbearance? Gardner was resolute: “Absolutely not!”

New Construction Housing Market

  • Without Urban Growth Boundaries expanding, land remains expensive and the price to build a home can reach up to $2.2 million. There are currently less than 2,600 single family permits issued. Permit activity hasn’t been this low since 2011.

    “I like Bothell, but I don’t like 2.2 million Bothell,” said Gardner.

  • There will be greater attention to zoning because supply does not meet demand. For example, in the city of Seattle, 70% of residential zoned land is for single family, something which is no longer sensible. Gardner anticipates a greater push towards the ability to build multifamily housing inside single family areas, like in the state of Oregon. There will be lots of NIMBY pushback, on top of pricey land and development costs, but “it’s going to happen.”

Slide reproduced with permission from Matthew Gardner, Windermere Real Estate

King County Forecast

  • Work from home is real & will increase demand in the suburbs & adjoining counties.
  • Price growth will slow.
  • First-time buyer demand will remain robust
  • Watch the urban condo markets – they are doing OK, but will demand continue?

Eastside Forecast

  • Growing commercial activity will lead housing demand to continue increasing.
  • Price growth must slow – and that’s a good thing!
  • First-time buyer demand is Likely to grow with WFH paradigm
  • Expect more transactions in 2022 than you saw last year.

Matthew Gardner sits on the Washington State Governors Council of Economic Advisors, chairs the Board of Trustees at the Washington Center for Real Estate Research, and is an Advisory Board Member at the Runstad Department of Real Estate at the University of Washington where he lectures in real estate economics.