RisMedia.com - Mortgage Bankers Are Projecting Strong Economic Growth Through 2007
RISMEDIA, Jan. 28 – The Mortgage Bankers Association (MBA) is projecting strong economic growth through 2007, with gross domestic product (GDP) growing at a trend rate of about 3.5 percent in real terms annually.
MBA released its long-term economic forecast for 2005, 2006 and 2007 during its annual State of the Real Estate Finance Industry.
"The year 2005 looks to be a strong one, with GDP growing slightly above trend at 3.6 percent, down somewhat from the 4.4 percent growth rate of 2004. This will result in continued strength in employment and a strong but modestly slowing housing market. We see the job market getting stronger, even with continued strong--though slightly slower--gains in productivity. There will likely be a slight uptick in the inflation rate in 2005, which will support the Fed's continued march upward with the fed funds target as the Fed maintains focus on its No. 1 objective of keeping inflation at bay," said Doug Duncan, MBA chief economist and senior vice president, research and business development. "Long-term rates will therefore remain quite low and thus supportive of real estate finance activity, whether residential or commercial."
Duncan added that, "Long-term rates should increase from current levels by 50 to 65 basis points by the end of 2005, and another 25 to 35 basis points during 2006, finally reaching about 7 percent for a 30-year, fixed-rate mortgage by the end of 2007. Coming off a fairly steady rate environment in 2004, these are very modest interest rate increases for the level of economic growth we are expecting."
Following are the key points of the latest MBA forecast:
· Real GDP growth will average 3.5 percent during 2005, and 3.6 percent in 2006 and 3.5 percent in 2007.
· The unemployment rate will decline from the current level of about 5.4 percent to 5.2 percent by the middle of 2007.
· The 10-year Treasury rate will rise to an average of 4.7 percent by the fourth quarter of 2005 and 4.9 percent during the fourth quarter of 2006, and reach 5.3 percent during the fourth quarter of 2007. Mortgage rates will follow a similar pattern.
· Existing-home sales will come off record levels and fall by 7.2 percent in 2005, another 7 percent in 2006 and a bit more than 1 percent in 2007. At that pace, sales in 2007 will be at the then record level of 2002.
· New-home sales will fall by 6.1 percent in 2005, by 10 percent in 2006 and another 3 percent in 2007, again at the record level of 2002.
· In addition, home-price growth is expected to be less rapid, with existing-home prices increasing 4.7 percent during 2005 and new-home prices increasing 3.7 percent. Price increases in 2006 and 2007 are expected to be in the 3 percent to 4 percent range.
· Residential mortgage originations for both purchase and refinance loans will be down modestly from the second biggest year on record in 2004. Purchase loans will total $1.559 trillion in 2005, decline slightly to $1.517 trillion in 2006 and then rise to $1.556 trillion in 2007.
· Residential refinance loans will total $983 billion in 2005, $689 billion in 2006 and $559 billion in 2007.
· Total residential mortgage production in 2005 will be $2.542 trillion, basically tied with 2002 for the third-biggest year 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.
· It appears from preliminary data that mortgage bankers originated a record volume of commercial loans in 2004. Commercial mortgage activity should be similarly strong in 2005 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.
MBA released its long-term economic forecast for 2005, 2006 and 2007 during its annual State of the Real Estate Finance Industry.
"The year 2005 looks to be a strong one, with GDP growing slightly above trend at 3.6 percent, down somewhat from the 4.4 percent growth rate of 2004. This will result in continued strength in employment and a strong but modestly slowing housing market. We see the job market getting stronger, even with continued strong--though slightly slower--gains in productivity. There will likely be a slight uptick in the inflation rate in 2005, which will support the Fed's continued march upward with the fed funds target as the Fed maintains focus on its No. 1 objective of keeping inflation at bay," said Doug Duncan, MBA chief economist and senior vice president, research and business development. "Long-term rates will therefore remain quite low and thus supportive of real estate finance activity, whether residential or commercial."
Duncan added that, "Long-term rates should increase from current levels by 50 to 65 basis points by the end of 2005, and another 25 to 35 basis points during 2006, finally reaching about 7 percent for a 30-year, fixed-rate mortgage by the end of 2007. Coming off a fairly steady rate environment in 2004, these are very modest interest rate increases for the level of economic growth we are expecting."
Following are the key points of the latest MBA forecast:
· Real GDP growth will average 3.5 percent during 2005, and 3.6 percent in 2006 and 3.5 percent in 2007.
· The unemployment rate will decline from the current level of about 5.4 percent to 5.2 percent by the middle of 2007.
· The 10-year Treasury rate will rise to an average of 4.7 percent by the fourth quarter of 2005 and 4.9 percent during the fourth quarter of 2006, and reach 5.3 percent during the fourth quarter of 2007. Mortgage rates will follow a similar pattern.
· Existing-home sales will come off record levels and fall by 7.2 percent in 2005, another 7 percent in 2006 and a bit more than 1 percent in 2007. At that pace, sales in 2007 will be at the then record level of 2002.
· New-home sales will fall by 6.1 percent in 2005, by 10 percent in 2006 and another 3 percent in 2007, again at the record level of 2002.
· In addition, home-price growth is expected to be less rapid, with existing-home prices increasing 4.7 percent during 2005 and new-home prices increasing 3.7 percent. Price increases in 2006 and 2007 are expected to be in the 3 percent to 4 percent range.
· Residential mortgage originations for both purchase and refinance loans will be down modestly from the second biggest year on record in 2004. Purchase loans will total $1.559 trillion in 2005, decline slightly to $1.517 trillion in 2006 and then rise to $1.556 trillion in 2007.
· Residential refinance loans will total $983 billion in 2005, $689 billion in 2006 and $559 billion in 2007.
· Total residential mortgage production in 2005 will be $2.542 trillion, basically tied with 2002 for the third-biggest year 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.
· It appears from preliminary data that mortgage bankers originated a record volume of commercial loans in 2004. Commercial mortgage activity should be similarly strong in 2005 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.
posted by Kirby P at 9:01 AM
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