Real estate poised for 'long-term' strength

January 23, 2004

Despite rising interest rates, bankers forecast steady purchase-mortgage growth through 2006

Inman News

The Mortgage Bankers Association on Thursday released its long-term economic forecast for 2004, 2005 and 2006, which projects strong economic growth through 2006 and gross domestic product growth rates exceeding 4 percent each year.

The MBA forecasts real GDP growth will average 4.7 percent during 2004, and 4.1 percent in 2005 and 2006. The unemployment rate will decline from the current level of about 5.7 percent to 5.2 percent by the middle of 2006.

MBA expects the 10-year Treasury rate will rise to an average of 4.5 percent by the fourth quarter of 2004, 5.3 percent during the fourth quarter of 2005, and average 5.4 percent during 2006. Mortgage rates will follow a similar pattern, although the spread between mortgage and Treasury rates is expected to tighten.

Existing-home sales will come off record levels and fall by 5.1 percent in 2004 and fall by 3.6 percent in 2005 and be essentially unchanged in 2006. Sales will remain at very high levels by historical standards. New-home sales will fall by 7.2 percent in 2004 and fall by 3.3 percent in 2005, but remain unchanged in 2006. In addition, home-price growth is expected to be modest, with existing-home prices increasing 5.5 percent during 2004 and new-home prices increasing 3.7 percent. Price increases in 2005 and 2006 are expected to be in the 4 percent range, according to the forecast.

Mortgage originations will be down from a record high in 2003, but will hit $1.99 trillion in 2004, $1.72 trillion in 2005 and $1.78 trillion in 2006. While the refinancing volumes will be far below the levels of 2002 and 2003, mortgage originations for purchasing homes are expected to be $1.31 trillion in 2004, $1.35 trillion in 2005 and $1.42 trillion in 2006, versus $1.27 trillion in 2003.

"The year 2004 looks to be an exceptionally strong year, building on the gains of the last part of 2003, with the result of continued strength in employment and the housing market. We see the job market getting even stronger, even with – and in some cases due to – the record gains in productivity, resulting in a positive impact on home purchases and mortgage originations," said Doug Duncan, MBA chief economist and senior vice president, research and business development.

"Despite this level of economic growth, we see interest rates increasing only moderately due to continued expectations of low inflation. Long-term rates should increase from current levels by 40 to 50 basis points by the end of 2004, and another 70 to 80 basis points during 2005. Coming off our recent lows, these are very modest interest rate increases for the level of economic growth we are expecting," Duncan said.

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

Copyright: Inman News Features

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