The Mortgage Bankers Association is predicting $2.4 trillion in mortgage originations in 2004, according to its monthly update of the Mortgage Finance Forecast.

Last month, MBA had estimated $2.6 trillion in originations, but now predicts a rising interest rate environment will cut into refinancings this year. Home purchases will remain strong, however.

“Because of strong employment growth in March and April, rising inflation pressures and solid production growth, the Federal Reserve is likely to begin raising rates in June,” said MBA chief economist Doug Duncan. “Our forecast has for some time anticipated that the Fed would wait until late this year before starting to raise short-term interest rates, but the growth of the economy has accelerated and raised the likelihood of a near-term rate increase.”

The average rate for a 30-year fixed mortgage will increase to 6.4 percent by the fourth quarter of 2004, the group predicts.

Higher interest rates are expected to cause a slight moderation in overall home sales and residential building, but MBA expects a record number of new-home sales and only a slight decline in existing home sales.

The group also expects the drop in refinance originations to be faster than originally anticipated because of a more rapid increase in interest rates than previously forecast. Refinancings will total $1 trillion, down from the previous prediction of $1.2 trillion. Mortgages for purchasing homes will make up 57 percent of total originations, or $1.4 trillion.

The volume of adjustable-rate mortgages will likely rise as more households opt for ARMs to manage affordability. MBA expects about 33 percent of the total number of conventional purchase loans to be ARMs.

Washington, D.C.-based Mortgage Bankers Association is a national association representing the real estate finance industry.

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