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Real estate demand to remain robust

Bankers group forecasts only slight interest rate increases

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The Mortgage Bankers Association on Wednesday released its second-quarter update to its long-term economic forecasts for 2004, 2005 and 2006, which projects strong economic growth and robust housing demand. The MBA forecasts real gross domestic product growth will average 4.6 percent this year, 3.9 percent in 2005 and 3.8 percent in 2006. The unemployment rate will decline from the current level of about 5.7 percent to 5.3 percent by the end of 2006. "Even with these strong growth expectations, interest rate increases will be modest due to continued expectations of low inflation," said Doug Duncan, MBA's chief economist and senior VP. MBA expects the 10-year Treasury rate will end 2004 at about 4.4 percent, implying a 30-year fixed-rate mortgage rate of about 6 percent. The group predicts the 30-year mortgage rate will rise to slightly more than 7 percent by the end of 2006. "From a historical perspective, these are very modest interest rate increases for the level of economic growth ...