A major national mortgage bankers’ group projects “robust” economic growth through 2007 and says 2005 will be the third-biggest year ever, trailing 2003 and 2002, the group said today.

The Mortgage Bankers Association today released its three-year economic forecast update, projecting robust economic growth of around 3.5 percent through 2007.

Total residential mortgage production in 2005 will be $2.78 trillion, the third-biggest year behind 2003 and 2002, the MBA said.

“At about 3.5 percent, economic growth will be solid this year despite a drag from sharply higher energy prices, hurricane-related impacts, and a widening trade deficit,” said Doug Duncan, MBA chief economist, in a statement.

“Housing will continue to be a major contributor to economic growth, and we expect the string of record-high home sales to continue for the fifth consecutive year in 2005,” Duncan said.

During a panel discussion at MBA’s 92nd Annual Convention & Expo in Orlando, Duncan said that the labor market will remain strong nationally, even with the devastating impacts on labor markets in the Gulf areas.

According to Duncan, core inflation should edge higher this year and next year as rising and elevated energy prices are expected to pass though to underlying inflation. The Fed is expected to continue its tightening through next year to ensure that inflation remains under control, the chief economist said.

“Long-term rates, albeit rising, will remain relatively low, supporting residential and commercial real estate finance activity,” continued Duncan. “Long-term rates have risen by about 40-50 basis points from their lows immediately after Hurricane Katrina.”

Duncan said the markets perceive that the Fed is now more concerned about inflation and will be more aggressive in raising rates than previously expected. The economist expects further increases in long-term yields of 20 to 30 basis points by the end of 2005, and another 40 to 50 basis points during 2006.

“The 30-year fixed-rate mortgage yield should reach 6.8 percent by the end of 2007. Even with this moderate increase from the current level, interest rates will still be quite low by historical standards,” said Duncan.

***

Send tips or a Letter to the Editor to janis@inman.com or call (510) 658-9252, ext. 140.

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