The Mortgage Bankers Association today increased its forecast for this year’s total mortgage originations by a whopping $500 billion, and the group’s economists now believe 2004 will post yet another record in home purchase originations.

MBA Chief Economist Doug Duncan now expects total loan originations to hit $2.5 trillion this year, up from his previous forecast of $2 trillion, due to low interest rates. His forecast expects $1.4 trillion in purchase-money originations this year, an increase compared with $1.3 trillion last year.

Long-term interest rates on home loans this month hit their lowest point since last summer. The 30-year fixed-rate average fell to 5.07 percent on Friday, and the 15-year fixed-rate rose slightly to 4.39 percent. The 1-year adjustable sank to just 2.93 percent.

Mortgage refinancings have rebounded due to the decline in interest rates. Refi activity eased up in the fourth quarter of 2003 after mortgage rates increased steadily from a low point of 4.9 percent on the 30-year mortgage in July 2003.

“Despite the strong pace of the economic recovery, interest rates have remained low for a variety of reasons. Some borrowers are responding to these rates by purchasing homes and others are making up for missed opportunities to refinance,” Duncan said.

Refinancings will account for 46 percent or $1.1 trillion in originations in 2004, up from the previous forecast of $700 billion. Refis accounted for 66 percent of total originations in 2003 and 62 percent in 2002.

Today’s revision was at least the second time the MBA revised its 2004 forecast upward. The association’s forecast in August 2003 predicted a much bleaker outlook for lenders this year. At that time, MBA expected only $1.5 trillion in total home loan originations in 2004 due to a dramatic slowdown in refinance activity.

The association now expects the 10-year Treasury rate will average only 3.9 percent during the second quarter and 4.1 percent in the third quarter, with correspondingly low mortgage rates. Rates on the average 30-year fixed mortgage are expected to be 5.4 percent in the second quarter, then increase slowly.

Rates have remained low despite because productivity gains and the effect of imports have held down inflation, according to Duncan. Higher corporate profits have held down the need to fund new business expansion through debt.

“Perhaps most importantly, the recovery in jobs has not been strong enough to drive up rates. Jobs growth has not been strong enough for the Fed to begin raising short-term interest rates at any time soon,” Duncan said.

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