The number of newly built homes will increase this year by 4.5 percent compared to 2022, rising to 670,000 this year and 750,00 next year, the National Association of Realtors (NAR) has predicted.

“Sales of new homes are already matching 2019 pre-COVID activity and are expected to increase in 2023, largely due to plentiful inventory in this segment of the market,” NAR chief economist Lawrence Yun said in a statement announcing the forecast.

February sales of new homes beat analysts’ expectations, the U.S. census bureau said.

Buyers are grabbing newly built homes as mortgage interest rates seem to have plateaued. Buyers can lock in a guaranteed rate now against what might be higher costs in the near future.

The U.S. Federal Reserve is expected to raise its key interest rate by at least a quarter point next month.

Also, the number of existing homes for sale remains sparse, pushing buyers toward new construction, the NAR report noted.

“Sales in the second half of the year should be notably better than in the first as job gains continue and more favorable mortgage rates are expected,” Yun said.

Danielle Hale, Realtor.com’s chief economist, concurs.

“If current economic conditions persist, with elevated mortgage rates…scarce inventory, the market is likely in for a long, slow climb,” she said in comments quoted by Yahoo Finance.

U.S. home sales dropped a surprising 22 percent in March, year over year, as we reported in “Home Sales Slipped Again in March” (25 Apr 2023).

“The lack of inventory is a major constraint to rising sales” of existing homes, Yun wrote in his statement. “Multiple offers are still occurring on about a third of all listings and 28 percent of homes are selling above list price.”

TREND FORECAST: As we have noted in articles such as “More Home Sellers Are Cutting Prices and Offering Incentives” (31 Jan 2023), new home sales will be hampered by the relative lack of open land on which to build.

As a result, home prices will remain high and the number of homes available will remain sparse until the Fed begins to lower its interest rate.

When it does, mortgage interest rates also will fall. That will liberate current homeowners unwilling to sell for fear of having to buy a new home that carries a stratospheric monthly payment.

Sales of existing homes will then increase, but demand will keep prices high.