The Mortgage Bankers Association is forecasting continued but moderated economic growth with interest rates reaching about 5.9 percent by the end of 2004.
“We are forecasting only a modest increase in rates despite the continued expansion of the economy,” said Doug Duncan, MBA’s senior vice president and chief economist. “As long as rates remain at these levels, home-buying will remain an attractive alternative to renting, and the purchase market will continue strong.”
MBA’s forecast calls for purchase originations to decline from an expected $1.48 trillion in 2004 to $1.45 trillion in 2005 and $1.44 trillion in 2006. The refinance market is expected to decline from $1.19 trillion in 2004 to $0.68 trillion in 2005 and $0.46 trillion in 2006. As a result, refinance mortgages will account for only 32 percent of the mortgage market in 2005 and 26 percent in 2006.
The forecast also predicts that 30-year fixed-rate mortgages will increase gradually to 6.5 percent by the end of 2005 and 6.8 percent by the end of 2006. That will largely be a result of long-term Treasury rates staying well below 5 percent during 2005 and climbing to 5.1 percent by the end of 2006, according to the forecast
Underlying the forecast is an expectation of continued economic growth, though at rates below those of this year, Duncan said. GDP growth will likely decline from an expected growth rate of 4.4 percent during 2004 to 3.5 percent in 2005 and 3.4 percent in 2006. The economy should generate about 400,000 new jobs per quarter over the next two years, which will help fuel the home purchase market, he said.
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