MBA Forecasts Slow Economic Recovery, Less Refinances, More Purchases

There is a lotrnof optimism in the economic forecast released by the Mortgage Bankers Associationrn(MBA) on Monday, but a lot of realism too.

The associationrnexpects economic growth to continue for the rest of this year but to slow downrnagain during the first half of the next. rnThe MBA says real GDP which will be a negativern0.5 percent in 2009 despite gains in the second half of the year will rise to aboutrn3 percent in 2010

While manyrnforecasters are saying that employment is improving, MBA sees unemploymentrncontinuing to climb, reaching 10 percent from the current 9.8 percent by thernend of the year and peaking at 10.2 percent before it begins to decline at thernmidpoint of 2010.

Jay Brinkmann,rnMBA's chief economist and senior vice president for research and economicsrnsaid, “The recession is behind us but the effects of the recession will lingerrnfor some time in the form of higher unemployment, and lower levels of business investmentrnand home construction. One of the big questions regarding growth will be thernbehavior of consumers. The large losses of consumer wealth in the form ofrnreduced home values and stock market losses, as well as the absolute losses ofrnincome resulting from unemployment, reduced employment and the fear ofrnunemployment have constrained consumer spending.”

The forecastrnprojects that mortgage rates will remain stable at around 5 percent through thernend of the year but will rise to around 5.6 percent by the end of 2010.  The low rates will spur refinancing which arernexpected to hit $1.25 trillion by the end of 2009 from $777 billion in 2008.  As rates rise, however, the refinancing boomrnwill slow to around $745 billion next year. rnAll originations, however,  are expected to reach $1.5 trillion as modestrnincreases in home sales compensate for the decline in refinancing.  Purchase originations this year are about 2rnpercent below the level of 2008 but should rise next year by about 12 percentrnfrom the total the 2009 figure of $718 billion.

The rate of existing homernsales this year is expected to be 2 percent higher than in 2008 and willrnincrease another 11.2 percent during 2010. rnHowever, new home sales for 2009 will be down by about 18 percentrnrelative to 2008.  Sales seemed to have bottomed in the first quarter ofrn2009 and have been rebounding modestly since. This should improve next year; newrnhome sales should post an increase of around 21 percent from 2009's very lowrnlevels.

The drop in home prices nationally may finally reach an end by early next yearrnbut that will vary by locality and home value with demand expected to bernhighest for entry level homes. <pBrinkmann stated, "Timing of the economicrnrecovery is very much tied to the growth in consumer spending. In addition, therneffect of the bulk of the federal stimulus package, particularly thernconstruction components, is not expected to be felt until 2010.

“Perhaps the biggest unknown is the level and volatility of interest rates.rnWhile the lack of inflation, high unemployment and excess capacity in therneconomy should hold interest rates down, there is a lot of uncertaintyrnregarding rates immediately following the termination of the Federal Reserve'srnpurchase of mortgage-backed securities. No doubt the Fed will do its best tornminimize adverse effects, but the elimination of these purchases will putrnupward pressure on all long-term rates as well as the spread between mortgagernrates and Treasuries. The size of any resulting rate move will largelyrndetermine the size of the refinance markrnrnrn

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