Mortgage bankers group expects real estate to remain strong

America's nesting trend is the main driver of a strong, three-year economic forecast released today by the Washington-based Mortgage Bankers Association.

This year's forecasted residential mortgage production - $2.74 trillion - will be the third-largest, trailing only 2002 and 2003. Projected economic growth through 2007 should average about 3.5 percent a year, reports the MBA.

Doug Duncan, MBA chief economist and senior vice president of research and development, calls the growth forecast "solid" in the face of surging energy prices and a widening trade deficit. Housing is a large reason for the positive outlook, he says.

"We expect the string of record-high home sales to continue for the fifth consecutive year," said Duncan in a statement announcing the MBA forecast. "The labor market will remain strong, even with an expected pickup in productivity in the second half of the year. Core inflation should edge higher this year but remain near the Fed's target of 1.5 percent."

To control inflation, he said, the Fed is expected to continue its modest tightening, but not so much to affect the real estate market. By 2007, Duncan says, a fixed-rate, 30-year mortgage should reach about 6.25 percent, which would still be low in historical terms. On Tuesday, the 30-year fixed mortgage stood at 5.24 percent, according to Bankrate.com.

Other findings and projections noted by MBA researchers:

Both new- and existing-home sales will rise 2 percent in 2005 nationally to a record level. But existing-home sales will fall by about 3 percent in 2006 and another 2 percent in 2007. Likewise, new-home sales will drop 4 percent in 2006 and 3 percent in 2007.

Price appreciation for homes will not be as intense, with median existing home prices increasing by 6.8 percent in 2005 compared with 9.3 percent in 2004. A 5.5 percent increase is expected in new home prices in 2005, compared with 13.3 percent in 2004.

Fixed mortgage rates will continue on an upward trend, increasing from 5.5 percent currently to 5.7 percent in the fourth quarter of 2005, 6.2 percent in the fourth quarter of 2006 and 6.3 percent in 2007.

Commercial loan activity should stay strong as rates stay low, and loans are refinanced.