Lenders will write fewer mortgages for home buyers this year than in any year since 1991.

That gloomy estimate from the Mortgage Bankers Association reflects the state of housing demand. The MBA Economic and Mortgage Finance Forecasts project $1.1 trillion in residential mortgage origination volume in 2011, roughly $100 billion more than earlier forecasts-but the increase is entirely due to refinancings.

Purchase loans are expected to end up at only $412 billion in 2011, less than originally forecast and down from $472 billion last year. Next year MBA is forecasting a 30 percent increase in purchase loans, to $531 billion. Despite lower a forecast for mortgage rates, weaker projected economic growth in 2012 led to a reduction in MBA’s origination forecast for all mortgages next year to $931 billion, which would be the lowest volume originated since 1997.

Jay Brinkmann, MBA’s Senior Vice President of Research and Education and Chief Economist said, “We have lived through a series of unprecedented events over the past month: the debt ceiling crisis, S&P’s downgrade of US Treasury debt, the ongoing sovereign debt crisis in Europe, a commitment by the Fed to keep rates near zero for the next two years and stock market volatility that has reached levels not seen since the fall of 2008.”

“While there is substantial uncertainty about how these events will impact consumer and business behavior, we do not believe that the economy is facing the same types of risks as in 2008. Were the US economy to enter a recession, it would likely be the result of an external shock, and would be shallow and relatively brief. On the other hand, given that both fiscal and monetary policymakers’ options are limited at this point, it would be difficult for policy changes to soften any blow.”

Brinkmann continued, “As negative as much of this outlook appears to be, there are some indicators that have been more promising. None of these factors suggest any strong growth, but in total they do suggest a path out of this slowdown. Thus, we have revised our projections from previous estimates for GDP growth downward from 1.9 percent growth to 1.5 percent growth for 2011 and from 2.8 percent growth to 2.3 percent growth in 2012. Given the overall path of economic growth, we expect that the unemployment rate will stay above 9 percent for the remainder of 2011 and drop only slightly below 9 percent by the end of 2012.”

“Nothing in the housing market data suggests any significant change from our previous expectation of a frustratingly slow period with lackluster sales volumes. Purchase application volumes remain stuck at low levels, and even fell further in response to the volatility surrounding the events described above. Relative to last month, we have reduced our estimate for purchase originations in 2012 significantly, matching our more pessimistic outlook for the economy, the job market, home sales, and home prices. We still see purchase volume increasing in 2012 relative to 2011′s volume of $412 billion, but now see just a little more than $100 billion of increase on a year-over-year basis.”

“The silver lining in all the turmoil for our industry is that mortgage rates are once again at or approaching historic lows. Lower rates continue to boost refinance volumes above our earlier projections, even though refinance application volume remains quite constrained by tight credit standards, the weak job market, and the large number of underwater borrowers. Relative to our prior forecast, we have boosted our refinance forecast estimate for 2011 to $697 billion, up almost $100 billion, and increased our refinance estimate for 2012 by more than $150 billion, to $400 billion.”

“For the market as a whole, we are now projecting total mortgage originations to be $1.1 trillion in 2011, up about $100 billion from our earlier projection, and $931 billion in 2012, down about $30 billion from our prior estimate,” Brinkmann concluded.