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MBA Sees Continued Strong Home Purchase Market

October 27, 2004

   Related Information
MBA Mortgage Finance Forecast [pdf]

MBA Economic Forecast

SAN FRANCISCO (October 27, 2004) – The Mortgage Bankers Association (MBA) today released its long-term forecast for the U.S. economy and the housing finance market for 2005 and 2006. MBA is forecasting continued, though moderating, economic growth, with purchase mortgage originations remaining near the record levels of 2004.

"We are forecasting only a modest increase in rates despite the continued expansion of the economy. As long as rates remain at these levels, home buying will remain an attractive alternative to renting and the purchase market will continue strong," said Douglas Duncan, MBA's senior vice president and chief economist.

In an address to the MBA's 91st Annual Convention and Expo in San Francisco, Duncan said that 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 $.68 trillion in 2005 and $.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.

Duncan said that 30-year fixed mortgage rates are expected to increase gradually to 6.5 percent by the end of 2005 and 6.8 percent by the end of 2006, largely 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. Short-term (1-year) Treasury rates are expected to climb more quickly, increasing from 2.2 percent to 3.2 percent by the end of 2005 and to 4.0 percent by the end of 2006.

"Underlying this forecast is our expectation of continued economic growth, albeit at rates below those of 2004, said Duncan. "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. However, the economy should generate approximately 400,000 new jobs per quarter over the next two years, a key factor in fueling the home purchase market."

"We see a number of demographic, economic and industry trends that are supporting home buying," said Jay Brinkmann, MBA's vice president of research and economics. "First, low rates are keeping mortgage payments very competitive with apartment rents, so we see apartment vacancy rates increase as homeownership rates increase. Second, low mortgage payments are opening homeownership opportunities to many immigrant families. Third, the mortgage industry has shown itself adept at using the capital markets to bring greater liquidity to a number of innovative products like hybrid ARMS, low documentation loans and loans to borrowers who want to buy a house while they are still rebuilding their credit."

Source: MBA

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