Washington , D.C. (July 12, 2005)
The Mortgage Bankers Association (MBA) today released
its three-year economic forecast update. MBA is projecting
robust economic growth of 3.5 percent through 2007.
Total residential mortgage production in 2005 will
be $2.74 trillion, the third-biggest year behind 2003
and 2002.
"At about 3.5 percent, economic growth will
be solid this year, despite a drag from sharply higher
energy prices and a widening trade deficit. Housing
will continue to be a major contributor to economic
growth. We expect the string of record-high home sales
to continue for the fifth consecutive year. The labor
market will remain strong, even with an expected pickup
in productivity in the second half of the year. Core
inflation should edge higher this year but remain
near the Feds target of 1.5 percent. The Fed
is expected to continue its modest tightening through
next year to insure that inflation remains under control,"
said Doug Duncan, MBA chief economist and senior vice
president, research and business development. "Long-term
rates will remain quite low, supporting residential
and commercial real estate finance activity."
Duncan continued, "Long-term rates should gradually
increase from current levels by 20 to 30 basis points
by the end of 2005, and another 40 to 50 basis points
during 2006, finally reaching about 6.25 percent for
a 30-year, fixed-rate mortgage in 2007. Despite a
moderate increase from a currently low rate environment,
interest rates will still be quite low by historical
standards."
Following are the key points of the latest MBA forecast:
Real GDP growth will average 3.5 percent in 2005
through 2007.
The unemployment rate will decline from the current
level of about 5.0 percent to 4.9 percent by the beginning
of 2007. The labor market is expected to add an average
of about 180,000 jobs monthly.
Fixed mortgage rates will rise from todays 5.5
percent to an average of 5.7 percent in the fourth
quarter of 2005, 6.2 percent during the fourth quarter
of 2006, and 6.3 percent in 2007.
Existing-home sales will increase by 2 percent to
a new record level in 2005, but pull back by about
3 percent in 2006 and decline another 2 percent in
2007. New-home sales will also rise by nearly 2 percent
to a record high in 2005, and slip by 4 percent in
2006 and about another 3 percent in 2007.
Home price appreciation is expected to moderate this
year, with median existing home prices increasing
by 6.8 percent during 2005, and 5.5 percent for new
homes, compared with 9.3 percent and 13.3 percent
in 2004, respectively. Price gains in 2006 and 2007
are expected to slow further to a more sustainable
pace of 4 to 5 percent.
Residential mortgage originations for purchase loans
will increase to $1.62 trillion in 2005, edging up
to $1.64 trillion in 2006 and $1.68 trillion in 2007.
Residential refinance loans will decline to $1.12
trillion in 2005, $863 billion in 2006 and $791 billion
in 2007.
Total residential mortgage production in 2005 will
be $2.74 trillion, the third-highest level ever.
The 2005 multifamily market will be similar in volume
to 2004's market. Brisk property sales and refinancings
are the underlying themes. This will be the front
of an elevation of refinance activity due to the maturing
of a significant volume of loans made a decade ago.
Mortgage bankers appear to be on pace to exceed last
year's record volume of commercial loan originations.
Commercial mortgage activity should remain strong
as rates remain low, yield-maintenance clauses expire
and loans get refinanced, and the strengthening economy
improves underlying commercial property economics.
Just as in residential mortgage markets, there are
differences in local economic effects on real estate
finance activity the same principle applies
to regional and local commercial property markets.
There are both upside and downside risks to this forecast.
On the upside, a rebound of inventory investment could
boost growth in the second half of the year by more
than projected. On the downside, higher oil prices,
higher core inflation or more aggressive tightening
by the Fed could result in a slower economic growth
than projected.
Source: Mortgage Bankers Association