2005 Volume: $2.1 Trillion.(trends in mortgage rates)(Brief Article)

Mortgage loan originations for 2004 should total $2.7 trillion, but decline to $2.1 trillion next year, according to the chief economist of the Mortgage Bankers Association.

Refinancings will make up 45% of this year's origination market but fall to 32% in 2005, said the economic forecast presented by MBA chief economist Doug Duncan and MBA vice president of research and economics Jay Brinkmann. The pair discussed the report at a special press briefing as well as at a general session at the group's annual convention here.

Mr. Duncan noted that the 10-year Treasury is currently trading at around or below the 4% range. Typically mortgages price 150 to 165 basis points above that. By the end of this year, the 10-year will be at 4.3% and the 30-year FRM at 5.9% and by the end of next year it will be up to 6.5%.

When asked about a possible bubble in home prices during the press briefing, Mr. Duncan noted that home sales are up, while the inventory of properties going on the market is down. That means there is a constraint on supply. It is hard to see where an across-the-board collapse will come from, although that doesn't mean there could be a decline in some markets, he said.

During the macro-economic part of the presentation, Mr. Duncan said while economic growth is strong, it is not "barn-burning." Therefore there is no pressure on the credit markets and rates will stay low.

Furthermore, the Federal Reserve has told the market it will raise short-term rates by 25 basis points in November and he said it would follow through. However, the MBA economists believe the Fed will then pause and not raise rates during the first quarter of 2005.

Mr. Brinkmann said that because the cost of mortgages has become so low, it is having an impact on the rental market, as renters are electing to become homebuyers. As a result, multifamily properties are seeing record vacancy rates.