The U.S. appears to be in a recession that could drive unemployment up to 7.7 percent by the end of next year, but keep interest rates on 30-year fixed-rate mortgages around 6 percent, the Mortgage Bankers Association forecasts.

The bottom line for housing is that while existing-home sales are projected to rebound slightly in 2009, residential investment will continue to decline in the first half of next year and new-home sales won’t bounce back until 2010, said MBA Chief Economist Jay Brinkmann.

"Credit markets continue to be dysfunctional and the recent intensification of the credit crunch is hitting an already weakened economy," Brinkmann said in a statement announcing the MBA’s latest economic forecast.

Rates for fixed-rate mortgages have ticked up to around 6.5 percent in recent weeks in response to policymakers’ programs to recapitalize banks and insure financial institutions. But Brinkmann expects demand for long-term debt will bring 30-year fixed-rate mortgage yields back to an average of 6 percent in the final quarter of this year, and that they’ll stay near or below that level through 2009 before trending up modestly in 2010 as the economy recovers.

The MBA expects the unemployment rate will grow from the current 6.1 percent to about 6.5 percent by the end of 2008, and steadily increase to a peak of 7.8 percent by the first part of 2010.

The MBA sees existing-home sales for 2008 ending up about 13 percent below 2007 totals, before increasing by 3 percent in 2009 and 6 percent in 2010.

New-home sales are another story. The MBA projects 2008 new-home sales will be down 36 percent relative to 2007, and see another 12 percent year-over-year decline in 2009 before growing by 25 percent in 2010.

Median home prices for new and existing homes are expected to fall about 6 to 7 percent in 2008, and decline by 3 to 4 percent next year before rising slightly in 2010.

What those sales and price trends mean for mortgages is a slight pickup in purchase loan orignations next year, but a continuing slide in refinance activity until 2010.

The MBA forecasts total residential mortgage production for 2009 will total $1.67 trillion, down 10 percent from an expected $1.86 trillion in 2008 and down 27 percent from the $2.3 trillion seen in 2007.

At a projected $912 billion, purchase originations are expected to be off 20 percent this year from last, but should rise 2 percent in 2009 and 9 percent in 2010 as home sales rebound and prices hit bottom, the MBA projects.

Refinance originations are expected to be off by 19 percent this year, to $949 billion, declining another 23 percent next year before growing by 4 percent in 2010 as lending standards ease.



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